PROBLEM 1-S. Miller Company has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) $ 1,590,000 701,000 889,000 978,000 $ (89,000) In an effort to resolve the problem, the company would like to prepare an income statement segmented by division. Accordingly, the Accounting Department has developed the following information: --Division- Red Sales Variable expenses as a percentage of sales $380,000 60% Traceable fixed expenses $ 265,000 Blue $660,000 30% $ 339,000 Green $ 550,000 50% $ 198,000 Required: 1. Prepare a contribution format income statement segmented by divisions. 2-a. The Marketing Department has proposed increasing the Green Division's monthly advertising by $26,000 based on the belief that it would increase that division's sales by 17%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented? 2-b. Would you recommend the increased advertising? Why or why not? PROBLEM 2 - Mike's Bikes, Incorporated, produces and sells many bicycles. The company has just opened a new plant to produce a new tricycle that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant's operation: Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (per month) 0 45,000 40,000 $ 79 $3 $566,000 Manufacturing costs: Direct materials cost per unit $15 Direct labor cost per unit $8 Variable manufacturing overhead cost per unit $3 Fixed manufacturing overhead cost (per month) $ 855,000 Management is anxious to assess the profitability of the new tricycle during the month of May. Required: 1. 2. 3. Assume that the company uses absorption costing. a. Calculate the unit product cost. b. Prepare an income statement for May. Assume that the company uses variable costing. a. Calculate the unit product cost. b. Prepare a contribution format income statement for May. Explain the reason for any difference in the ending inventory balances under the two costing methods and the impact of this difference on reported income.