Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale a cookbook, a travel guide, and a handy speller. Each book sells for $14. The publishing company's most recent monthly income statement is given below Product Line Travel Total Handy Company Cookbook Guide Speller $365,000 $135,000 $172,000 $ 58,000 Sales Expenses Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions General administration Warehouse rent Depreciation-office facilities 120,000 45,000 70,100 18,500 10,320 10,800 3,700 17,200 46,000 25,000 8,100 35,000 20,000 3,700 36,500 13,500 45,000 5,000 5,400 2,800 4,900 2,500 3,480 4,200 3,700 5,800 15,000 15,000 2,320 2,800 21,900 11,100 14,600 8,400 6,880 2,800 Total expenses 338,500 138,500 155,30044,700 Net operating income (loss) $ 26,500 $ (3,500) $ 16,700 $ 13,300 The following additional information is available about the company a. Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the statement above. Sales commissions are 10% of sales for any product b. The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the three product lines. An analysis of the company's activities indicates that the equipment is used 30% of the time to produce cookbooks, 55% of the time to produce travel guides, and 15% of the time to produce handy spellers c. The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 58,400 square feet of space, of which 10,800 square feet is used by the cookbook line, 27,600 square feet by the travel guide line, and 20,000 square feet by the handy speller line d. The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars e. The general administration cost and depreciation of office facilities both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines. f. All other costs are traceable to the three product lines in the amounts shown on the statement above The management of Diversified Products, Inc., is anxious to improve the publishing company's 6% return on sales Required 1. Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation and of warehouse rent as indicated by the additional information provided
