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: Units Price Beginning inventory Sold Budgeted and actual production Cell Phone Group TV Group 2,300 7,300 $ 105 $ 155 14,100 14,600 15,900 15,300 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: Unit variable costs Manufacturing Selling and administrative Traceable fixed costs Manufacturing Cell Phone Group TV Group Total $ 59 $ 94 Selling and administrative 233,600 106,000 272,340 106,000 $ 505,940 212,000 Nontraceable fixed costs Manufacturing Selling and administrative 124,000 85,600 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. EXHIBIT 18.9 Machine Tools Incorporated Contribution Income Statement (000s omitted) Net revenues Variable costs Contribution margin Controllable fixed costs Controllable margin Noncontrollable fixed costs Contribution by profit center (CPC) Nontraceable costs Operating income Company Breakdown into Profit Centers Breakdown of Division B to Product-Level Profit Centers $ 450 200 $ 250 Company as a Whole $ 2,000 900 $ 1,100 250 $ 850 400 100 $ 300 120 $ 180 Division A $ 600 200 $ 400 Division B $ 1,400 Not Traceable Product 1 $ 400 700 $ 700 100 $ 300 Product 2 $ 700 350 $ 350 150 $ 25 25 100 Product 3 $ 300 250 $ 50 0 $ 550 (25) $ 275 280 20 10 $ 270 $ (45) $ 265 $ 120 $ 250 130 $ (70) $ 50 120 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