Michiko Company has two divisions: C and D. During the year just ended, Division C had a segment margin of $25,000 and variable costs equal to 60% of sales. Traceable fixed costs for Division D were $23,000. Michiko Company as a whole had a contribution margin of 35%, a segment margin of $20,000, Common costs of $15,000 and sales of $150,000.

Required:

a) Given this data, prepare a segmented income statement in the contribution format showing in columns the Total as well as amounts for Division C and D (including percentages). Make sure that you properly label the segmented income statement. Only the Segmented Income Statement will be marked. Your calculations will not be marked.

b) The Manager of Division D suggests that if they sell a higher quality product, then Division D can increase sales by $35,000. In order to achieve these results, however, traceable fixed expenses for Division D would increase by $20,000. Do you recommend this course of action? Support your answer with calculations.

c) In deciding whether to keep or eliminate a particular segment of the business, is allocating a portion of a common fixed cost to that segment of the business helpful in making that decision? Provide a one sentence explanation.