Segmented Income Statement

Knitline Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.

	Sweaters	Jackets
Sales	$210,000	$450,000
Variable cost of goods sold	145,000	196,000
Direct fixed overhead	25,000	47,000

A sales commission of 5% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $20,000 for the sweater line and $50,000 for the jacket line.

Common fixed overhead for the factory was estimated to be $45,000. Common selling and administrative expense was estimated to be $15,000.

Required:

Prepare a segmented income statement for Knitline for the coming year, using variable costing. Enter all amounts as positive numbers.

Knitline Inc.
Segmented Income Statement
For the Coming Year
	Sweaters	Jackets	Total
	$	$	$
Less variable expenses:
Contribution margin	$	$	$
Less direct fixed expenses:
Segment margin	$	$	$
Less common fixed expenses:
			$

2. CONCEPTUAL CONNECTION Suppose that next year, all revenues and costs are expected to remain the same except for direct fixed overhead expense, which will go up by $10,000 for one of the product lines due to costs related to new equipment. Does it matter which line (sweaters or jackets) requires the new equipment? Why?

If the new equipment is needed in the product line, the increase will cause that segment margin to become a loss and management will need to consider whether the line should be dropped.