Problem 3

JB, Inc. sells two products, Product A and Product B. Product A is manufactured at (and distributed from) its facility in Tacoma, WA and Product B is manufactured in (and distributed from) its facility in Waukesha, WI.

	Product A	Product B
No. of units sold	6,100	5,200
No. of shipments to distributors	40	100
Selling price per unit sold	$125	$210
Direct production costs per unit sold	$75	$105
Advertising and marketing expenses	$40,000	$60,000
Depreciation on product line machinery and equipment	$42,000	$58,000
Distribution costs (based on no. of shipments)	$650	$800
Allocated general and administrative expenses	$110,000	$220,000
Allocated HQ management charges	$50,000	$100,000

Other information:

• Advertising and marketing expenses and general and administrative expenses are those costs incurred by the specific product line at their separate production and distribution facility.
• Depreciation on product line machinery and equipment is also specific to the production and distribution facility.
• HQs management charges are allocated to each product line by the corporate office, which is in Chicago.

Required

1. Prepare an Income Statement for JB, Inc. in the contribution format. The income statement should have a column for each product line and a total column.
2. Calculate the separate break-even amounts in unit sales and total sales dollars for Product A and for Product B.
3. Calculate the degree of operating leverage for Product A and for Product B.
4. (not used)
5. JB, Inc. has decided to eliminate one of the Product lines, either Product A or Product B. If they do so, they believe total unit sales would double for the item that they retain (Number of shipments to distributors would be 80 for Product A, if B were eliminated, or 200 shipments to distributors for Product B, if Product A were eliminated). Additionally, they would eliminate any cost that is specific to the product line and its operations. Lastly, the company would reduce total budgeted advertising and marketing to $75,000.

Required:

1. Prepare an Income Statement for Product A, in the contribution format, assuming Product B is eliminated.
2. Prepare an Income Statement for Product B, in the contribution format, assuming Product A is eliminated.