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 TV's. Information about finished goods inventory, sales, production, and average sales price follows: Cell Phone Group TV Group Units Beginning inventory 2.000 7.000 Price $90 $ 140 Sold 13.300 15.600 Budgeted and actual production 14.000 15.000 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: Cell Phone Group TV Group Total Unit variable costs Manufacturing Selling and administrative Traceable fixed costs Manufacturing 140.000 258700 0 $ 398,000 Selling and administrative 100,000 1002000 200,000 Nontraceable fixed costs Manufacturing 130,000 Selling and administrative 85.000 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 increase 2. What is the value stream profit of TVs? The value stream profit of TV'sEXHIBIT 18.9 Machine Tools Incorporated Contribution Income Statement (000s omitted) Company Breakdown into Profit Centers Breakdown of Division B to Product-Level Profit Centers Company as a Whole Division A Division B Not Traceable Product 1 Net revenues Product 2 Product 3 $ 2,000 $ 600 $ 1,400 $ 400 $ 700 $ 300 Variable costs 900 200 700 100 350 250 Contribution margin $ 1,100 $ 400 $ 700 $ 300 $ 350 $ 50 Controllable fixed costs 250 100 150 $ 25 25 100 0 Controllable margin $ 850 $ 300 $ 550 (25) $ 275 $ 250 Noncontrollable fixed costs $ 50 400 120 280 20 10 130 120 Contribution by profit center (CPC) $ 450 $ 180 $ 270 $ (45) $ 265 $ 120 $ (70) Nontraceable costs 200 Operating income $ 250