Please answer the required questions #1 and #2

1. Prepare a segmented income statement

2. Give arguments for and against allocation all costs

CASE 4-30 Service Organization; Segment Reporting L04-4 Music Teachers, Inc., is an educational association for music teachers that has 20,000 members. The association operates from a central headquarters but has local membership chapters throughout the United States. Monthly meetings are held by the local chapters to discuss recent developments on topics of interest to music teachers. The association's magazine, Teachers' Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing professional education credit. The association's statement of revenues and expenses for the current year is presented below. Music Teachers, Inc. Statement of Revenues and Expenses For the Year Ended November 30 Revenues $3,275,000 Expenses: Salaries Personnel costs Occupancy costs Reimbursement of member costs to local chapters Other membership services Printing and paper Postage and shipping Instructors' fees 920,000 230,000 280,000 600,000 500,000 320,000 176,000 80,000 General and administrative 38,000 Total expenses 3,144,000 Excess of revenues over expenses $ 131,000 The board of directors of Music Teachers, Inc., has requested that a segmented income statement be prepared showing the contribution of each segment to the association. The association has four segments: Membership Division, Magazine Subscriptions Division, Books and Reports Division, and Continuing Education Division. Mike Doyle has been assigned responsibility for preparing the segmented income statement, and he has gathered the following data: a. The 20,000 members of the association pay dues of $100 per year, of which $20 covers a one-year subscription to the Teachers' Forum. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the Magazine Subscriptions Division. b. A total of 2,500 one-year subscriptions to Teachers' Forum were also sold last year to nonmembers and libraries at $30 per subscription. In addition to subscriptions, the journal generated $100,000 in advertising revenues. Page 219 c. The costs to produce the Teachers' Forum magazine included $7 per subscription for printing and paper and $4 per subscription for postage and shipping. d. A total of 28,000 technical reports and professional texts were sold by the Books and Reports Division at an average selling price per unit of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping. e. The association offers a variety of continuing education courses to both members and nonmembers. The one-day courses had a tuition cost of $75 each and were attended by 2,400 students. A total of 1,760 students took two-day courses at a tuition cost of $125 for each student. Outside instructors were paid to teach some courses. f. Salary costs and space occupied by division follow: Salaries Space Occupied (square feet) 2,000 2,000 Membership Magazine Subscriptions Books and Reports Continuing Education Corporate staff Total $210,000 150,000 300,000 180,000 3,000 2,000 80,000 1,000 $920,000 10,000 Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $280,000 in occupancy costs (which can be traced to segments based on their square feet occupied) includes $50,000 in rental cost for a warehouse used by the Books and Reports Division for storage purposes. g. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the Continuing Education Division. h. General and administrative expenses include costs relating to overall administration of the association as a whole. The company's corporate staff does some mailing of materials for general administrative purposes. The expenses that can be traced or assigned to the corporate staff, as well as any other expenses that are not traceable to the segments, will be treated as common costs. It is not necessary to distinguish between variable and fixed costs. Required: 1. Prepare a segmented income statement for Music Teachers, Inc. This statement should show the segment margin for each division as well as results for the association as a whole. 2. Give arguments for and against allocating all costs of the association to the four divisions