PROBLEM 11-17 Basie Sepmented Statement; Activity-Based Cost Assignment |LOI Vega Foods Inc. recently purchased a small mill that it intends to operate as one of its subsidiaries. The newly acquired mill offers three products for sale--wheat cercal, pancake mix, and flour. Each product cells for $10 per package. Materials, labour, and other variable production costs are $3.00 per bag of wheat cereal, 54.20 per bug of pancake mix, and $1.80 per bag of flour. Sales commissions are 10% of sales for any product. All other costs are fixed. The mill's income statement for the most recent month is given below. Total Company S600,000 Wheat Cereal Product Line Pancake Mix $300.000 Flour $200.000 S100,000 Sales Expenses Materials, labour, and other Sales commissions Advertising Saluries Equipment depreciation Warehouse rent Selling and administrative Total expenses Operating income clos 204.000 60.000 123.0 66.000 30.000 12.000 900XXO 585.000 $15.000 00.000 20.000 48.000 34.00 10,000 4.000 30.000 206,000 S (6.000) 126.000 30.000 60.000 21.000 15.000 6,000 30,000 288.000 5 12.000 18,000 10.000 15.000 11,000 5.000 2.000 30,000 91.000 $ 9.000 The following additional information about the company is available The same equipment is used to mill and package all the products. In the abwe income statement equipment depreciation has been alloxated on the basis of sales dollars. An analysis of equipment usage indicates that it is used 10% of the time to make wheat cereal 50% of the time to make pan- cake mix, and 10% of the time to make flour All three products 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 4.000 square metres of space, of which 8.000 square metres are used for what cereal 14,000 square metres are used for pancake mix and XX quare metres are used for Door, The warehouse space costs the company Sarso per square mete torent c d. The selling and administrative costs relate to the administration of the company as a whole. In the above income statement, these costs have been divided equally among the three product lines. All other costs are traceable to the product lines. Management at Vega Foods is anxious to improve the mill's 2,5% margin on sales, Required: 1. Prepare a new contribution format segmented income statement for the month. Adjust the alloca tions as required After seeing the income statement in the main body of the problem, management has decided to eliminate the wheat cereal, because it is not returning a profit, and to focus all available resources on promoting the pancake mix. Based on the statement you have prepared, do you agree with the decision to eliminate the wheat cereal? Explain. b. Based on the statement you drave prepared, do you agree with the decision to focus all avail- able resources on promoting the pancake mis? Assume that an ample market is available for all three products. Hint. Compute the CM ratio for each product.) PROBLEM 11-17 Basie Sepmented Statement; Activity-Based Cost Assignment |LOI Vega Foods Inc. recently purchased a small mill that it intends to operate as one of its subsidiaries. The newly acquired mill offers three products for sale--wheat cercal, pancake mix, and flour. Each product cells for $10 per package. Materials, labour, and other variable production costs are $3.00 per bag of wheat cereal, 54.20 per bug of pancake mix, and $1.80 per bag of flour. Sales commissions are 10% of sales for any product. All other costs are fixed. The mill's income statement for the most recent month is given below. Total Company S600,000 Wheat Cereal Product Line Pancake Mix $300.000 Flour $200.000 S100,000 Sales Expenses Materials, labour, and other Sales commissions Advertising Saluries Equipment depreciation Warehouse rent Selling and administrative Total expenses Operating income clos 204.000 60.000 123.0 66.000 30.000 12.000 900XXO 585.000 $15.000 00.000 20.000 48.000 34.00 10,000 4.000 30.000 206,000 S (6.000) 126.000 30.000 60.000 21.000 15.000 6,000 30,000 288.000 5 12.000 18,000 10.000 15.000 11,000 5.000 2.000 30,000 91.000 $ 9.000 The following additional information about the company is available The same equipment is used to mill and package all the products. In the abwe income statement equipment depreciation has been alloxated on the basis of sales dollars. An analysis of equipment usage indicates that it is used 10% of the time to make wheat cereal 50% of the time to make pan- cake mix, and 10% of the time to make flour All three products 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 4.000 square metres of space, of which 8.000 square metres are used for what cereal 14,000 square metres are used for pancake mix and XX quare metres are used for Door, The warehouse space costs the company Sarso per square mete torent c d. The selling and administrative costs relate to the administration of the company as a whole. In the above income statement, these costs have been divided equally among the three product lines. All other costs are traceable to the product lines. Management at Vega Foods is anxious to improve the mill's 2,5% margin on sales, Required: 1. Prepare a new contribution format segmented income statement for the month. Adjust the alloca tions as required After seeing the income statement in the main body of the problem, management has decided to eliminate the wheat cereal, because it is not returning a profit, and to focus all available resources on promoting the pancake mix. Based on the statement you have prepared, do you agree with the decision to eliminate the wheat cereal? Explain. b. Based on the statement you drave prepared, do you agree with the decision to focus all avail- able resources on promoting the pancake mis? Assume that an ample market is available for all three products. Hint. Compute the CM ratio for each product.)
