EXHIBIT 18.9 Machine Tools Incorporated Contribution Income Statement (000s omitted) Company Breakdown into Profit Centers Breakdown of Division B to Product-Level Profit Centers Not Traceable Net revenues Variable costs Contribution margin Controllable fixed costs Controllable margin Noncontrollable fixed costs Contribution by profit center (CPC) Nontraceable costs Operating income Company as a Whole $ 2,000 900 $ 1,100 250 $ 850 400 Division A $ 600 200 $ 400 100 $ 300 120 Division B $ 1,400 700 $ 700 150 $ 550 280 Product 1 $ 400 100 $ 300 25 $ 275 10 Product 2 $ 700 350 $ 350 100 $ 250 130 $ 25 (25) 20 Product 3 $ 300 250 $ 50 0 $ 50 120 $ (70) $ 450 $ 180 $ 270 $ (45) $ 265 $ 120 200 $ 250 Levine Company is a manufacturer of very inexpensive cell phones and television sets. The company uses recycled parts and a highly structured manufacturing process to keep costs low so that it can sell at very low prices. The company uses lean accounting procedures to help keep costs low and to examine financial performance. Levine uses value streams to study the profitability of its two main product groups, cell phones and TVs. Information about finished goods inventory, sales, production, and average sales price follows: Cell Phone Group TV Group Units Beginning inventory Price Sold Budgeted and actual production 3,600 $ 170 16,700 17,200 8,600 $ 220 17,200 16,600 Levine's costs for the current quarter are as follows. Note that some of the company's manufacturing and selling costs are traceable directly to the two value streams, while other costs are not traceable. Levine considers all traceable fixed costs to be controllable by the manager of each group. Also, Levine's value stream shows operating income determined by the full costing method; the difference from the traditional full costing income statement is that the effect on income from a change in inventory is shown as a separate item on the value-stream income statement: Celi Phone Group TV Group Total $ 98 5 $ 133 5 Unit variable costs Manufacturing Selling and administrative Traceable fixed costs Manufacturing Selling and administrative Nontraceable fixed costs Manufacturing Selling and administrative 309, 600 132,000 338, 640 132,000 $ 648, 240 264,000 86,000 79,800 Required: Consider Levine's two value streams as profit centers, and use the contribution income statement as a guide to develop a value- stream income statement for the company. (See Exhibit 18.9 for an example of a contribution income statement.) In your solution, replace the term controllable margin (in Exhibit 18.9) with value-stream profit. Be sure to include the inventory effect on profit as a separate line item in your value-stream income statement. 1. What is the effect of the inventory change (and in what direction) on the value stream profit of cell phones? Effect of the inventory change 2. What is the value stream profit of TVs? The value stream profit of TVs