Mikes Crafts & Celebrations, Inc. is a manufacturer of party supplies whose tag line is Nothing you need, Everything you want. The company operates in three segments, Art Supplies, Holidays and Mikes Brand Packaging. Production from Mikes Brand Packaging, such as cellophane and ribbon, is used extensively in completing the inventory for sale by both Art Supplies and the Holidays segments. Mikes Brand Packaging has external sales in addition to the internal sales. All information contained includes the impact of intercompany sales, however all intercompany sales are recorded at the same expected profit margin as if they were external. Variable costs include materials, labor and other, all other costs other than sales commissions are fixed. Sales commissions are [3%] of sales for any product, including intercompany sales. The manufacturers income statement for the most recent month is given below:

The following additional information is available about the company:

a. The same equipment is used to produce products for all three segments. In the above income statement, monthly equipment depreciation of $[50,000] has been allocated on the basis of sales dollars. An analysis of equipment usage indicates that it is used 40% of the time to make Art Supplies, 50% of the time to make Holidays, and 10% of the time to make Mikes Brand Packaging.

b. All three segment inventories are stored in the same warehouse. In the above income statement, the warehouse rent has been allocated on the basis of sales dollars. The warehouse contains 50,000 square feet of space, of which 20,000 square feet are used for Art Supplies, 24,000 square feet are used for Holidays, and 6,000 square feet are used for Mikes Brand Packaging. The warehouse space costs the company of $[$2.00] per square foot per month to rent.

c. The Corporate Overhead costs relate to the corporate administration of the company as a whole. In the above manufacturers income statement for the most recent month, these costs have been divided equally among the three product lines.

d. All other costs than those described in a, b, and c. above are traceable to the product lines.

Mikes Crafts & Celebrations, Incs management is anxious to improve the manufacturers current margin on sales.

Required:

1. Complete the Traditional Financial Statement.
2. a. Prepare a Contribution Format Segmented Income Statement for the month based on the Traditional Financial Statement prepared above. b. In completing this step, consider adjusting the allocation of equipment depreciation and warehouse rent if you feel needs to be based on the additional information provided, document and support your decision to change or keep the allocation the same.

Segments Art Supplies Holidays Mike's Brand Packaging Total Company [$600,000] $750,000 $500,000 [calculate] Sales Expenses: Materials, labor, and other Sales commissions Advertising $150,000 (calculate) 75,000 $300,000 [calculate] 50,000 150,000 (calculate] 35,000 $600,000 [calculate] 160,000 100,000 150,000 200,000 450,000 Salaries Equipment depreciation Warehouse rent Corporate Overhead Total expenses Net operating income (loss) (calculate) (calculate) 75,000 (calculate] [calculate) 75,000 [calculate] [calculate) 75,000 [50,000] (calculate] 225,000 [calculate) (calculate] [calculate] (calculate) [calculate] [calculate] [calculate] [calculate]