Levine Company is a manufacturer of very inexpensive cell phones and television sets. The company uses recycled ports 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 2.900 7.400 Price $ 135 $ 185 Sold 15.300 16.500 Budgeted and actual production 15.200 15,900 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 $ 77 $ 112 Selling and administrative Traceable fixed costs Manufacturing 252.800 302. 100 $ 354,900 Selling and administrative 118.030 236,000 Nontraceable fixed costs Manufacturing 105,000 selling and administrative 86,800 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, eplace 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 TVE? The value stream profit of TVsEXHIBIT 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 Product 2 Product 3 Net revenues $ 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 $ 50 Noncontrollable fixed costs 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