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 $10. The publishing company's most recent monthly income statement is shown below. Product Line Total Travel Handy Company Cookbook Guide Speller Sales $ 300,000 $90,000 $150,000 $60,000 Expensest Printing costs 102,000 27, 63,000 12. eee Advertising 36,000 13,500 19,500 3,000 General sales 18,000 5,400 9,000 3,600 Salaries 33,000 18,000 9,000 6,000 Equipment depreciation 9,000 3,000 3,000 3,000 Sales commissions 30,000 9.000 15,000 6. General administration 42,000 14,000 14,000 14,000 Warehouse rent 12,000 3,600 6,000 2,400 Depreciation-office facilities 3,000 1,000 1,000 1,000 Total expenses 285,000 94,500 139,500 51,000 Net operating income (loss) $ 15,000 $ (4,500) $ 10,500 $ 9,000 The following additional information is available: 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 income statement above. Sales commissions are 10% of sales. b. The same equipment is used to produce all three books, so the equipment depreciation expense 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, 50% of the time to produce travel guides, and 20% of the time to produce handy spellers The warehouse is cert store finished units of neurt en the rental rnct has been allocated in the reduct lines on the basis of a. Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, la and variable overhead) are traceable to the three product lines as shown in the income statement above, Sales commissions a 10% of sales. b. The same equipment is used to produce all three books, so the equipment depreciation expense 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, 50% of the time to produce travel guides, and 20% 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 basi sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 48,000 square feet of space, which 7,200 square feet is used by the cookbook line, 24,000 square feet by the travel guide line, and 16,800 square feet by ti 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 prod 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. Th 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 income statement above. The management of Diversified Products, Inc., is anxious to improve the publishing company's 5% return on sales. Required: 1. Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation an warehouse rent as indicated by the additional information provided. 2. Based on the segmented income statements given in the problem, management plans to eliminate the cookbook because it is returning a profit, and to focus all available resources on promoting the travel guide. However, based on the new contribution form segmented income statement that you prepared: a. Do you agree with management's plan to eliminate the cookbook? b-1. Compute the contribution margin ratio for each product. b-2. Based on the statement you have prepared, do you agree with the decision to focus all available resources on promoting the travel guide