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) [10 Marks] 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) [2 Marks] 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) [1 Mark] 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.