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 shown below. Total Company Cookbook $365,000 $135,000 Product line Travel Handy Guide Speller $ 172,000 $58,000 Sales Expenses: Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions General administration Warehouse rent Depreciation office facilities Total expenses Net operating income (loss) 120,000 45,000 46,000 25,000 21,900 8,100 35,000 20,000 11,100 3,700 36,500 13,500 45,000 15,000 14,600 5,400 8,400 2,800 338,500 138,500 26,500 $ (3,500) 70,100 4,900 18,500 2,500 10,3203,480 10,800 4,200 3,700 3,700 17,200 5,800 15,000 15,000 6,880 2,320 2,800 2,800 155,300 44,700 16,700 $13,300 $ $ 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, 55% of the time to produce travel guides, and 15% of the time to produce handy spellers. 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. 2. Based on the segmented income statements given in the problem, management plans to eliminate the cookbook because it is not returning a profit, and to focus all available resources on promoting the travel gu the new contribution format 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? Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Part 1 Req 28 Part 2 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. (Round your intermediate calculations to 2 decimal places.) Total Cookbook Travel Handy Company Guide Speller Variable expenses
