Morley Products is a wholesale distributor that competes in three marketsCommercial, Home, and School. It prepared the following segmented income statement:

	Total Company	Commercial Market	Home Market	School Market
Sales	$ 20,000,000	100.0%	$ 8,000,000	$ 5,000,000	$ 7,000,000
Less expenses:
Cost of goods sold	9,500,000	47.5%	3,900,000	2,400,000	3,200,000
Sales support	3,600,000	18.0%	1,440,000	900,000	1,260,000
Order processing	1,720,000	8.6%	688,000	430,000	602,000
Warehousing	940,000	4.7%	376,000	235,000	329,000
Packing and shipping	520,000	2.6%	208,000	130,000	182,000
Advertising	1,690,000	8.5%	676,000	422,500	591,500
General management	1,310,000	6.5%	524,000	327,500	458,500
Total expenses	19,280,000	96.4%	7,812,000	4,845,000	6,623,000
Net operating income	$ 720,000	3.6%	$ 188,000	$ 155,000	$ 377,000

Although the Commercial Market has the highest sales, it reports much lower profit than the School Market. Therefore, management is considering shifting attention and resources away from the Commercial Market and towards the School Market. They have asked for your recommendation how to proceed. You have decided to create a properly formatted segmented income statement. To assist in this endeavor, you have gathered the following information: a. The cost of goods sold figures shown in the income statement above are traceable to their respective markets. b. Sales support, order processing, and packing and shipping are variable costs. Warehousing, general management, and advertising are fixed costs. In the income statement above, all of these costs have been allocated to the three markets on the basis of sales dollars. c. Using your knowledge of activity-based costing, you have compiled the following data:

		Amount of Activity
Cost Pool and (Allocation Base)	Total Cost	Commercial Market	Home Market	School Market	Total
Sales support (number of calls)	$ 3,600,000	8,000	5,000	11,000	24,000
Order processing (number of orders)	$ 1,720,000	1,750	5,200	1,650	8,600
Warehousing (square feet of space)	$ 940,000	35,000	65,000	17,500	117,500
Packing and shipping (pounds shipped)	$ 520,000	24,000	16,000	64,000	104,000

d. You have also determined the following breakdown of the companys advertising expense and general management expense:

	Total	Commercial Market	Home Market	School Market
Advertising:
Traceable	$ 1,460,000	$ 700,000	$ 180,000	$ 580,000
Common	$ 230,000
General management:
Traceable salaries	$ 410,000	$ 150,000	$ 120,000	$ 140,000
Common	$ 900,000

Required: 1. Refer to the data in part (c) above. Calculate an activity rate for each cost pool. Then, using those rates, allocate each cost pool to the companys three markets. 2. Prepare a revised contribution format segmented income statement for the company. Include an Amount column and a Percent column for the company as a whole and for each market segment.