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	2,200	7,200
Price	$ 100	$ 150
Sold	13,900	15,800
Budgeted and actual production	14,400	15,200

Levines costs for the current quarter are as follows. Note that some of the companys 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, Levines 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	$ 56	$ 91
Selling and administrative	5	5
Traceable fixed costs
Manufacturing	201,600	267,520	$ 469,120
Selling and administrative	104,000	104,000	208,000
Nontraceable fixed costs
Manufacturing			126,000
Selling and administrative			85,400

Required:

Consider Levines 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?

2. What is the value stream profit of TVs?

EXHIBIT 18.9 Machine Tools Incorporated Contribution Income Statement (000s omitted)