Segmented Income Statement Management Decision Making FunTime Company produces three lines of greeting cards: scented, musical, and regular. Segmented income statements for the past year are as follows: Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses Segment margin Less: Common fixed expenses Operating income (loss) Scented Musical Regular Total $10,000 $15,000 $25,000 $50,000 7,000 12,000 12,500 31,500 $3,000 $3,000 $12,500 $18,500 4,000 5,000 3,000 12,000 (1,000) $ (2,000) $ 9,500 $6,500 7,500 $(1,000) Kathy Bunker, president of FunTime, is concerned about the financial performance of her firm and is seriously considering dropping both the scented and musical product lines. However, before making a final decision, she consults Jim Dorn, FunTime's vice president of marketing, Required: 3. Suppose that eliminating either line reduces sales of the regular cards by 10%. Would a combination of increased advertising (the option described in Requirement 1) and eliminating one of the lines be beneficial? Prepare segmented income statements assuming the Musical line is dropped and advertising is increased. Note: Enter all amounts as positive numbers except subtotals, if applicable FunTime Segmented Income Statement Total Scented 19,500 X Regular 22.500 V Sales 47.000 x 24,000 X 13,000 X 13,000 X Less: Variable expenses Contribution margin Less: Direct fixed expenses 7.500 X 10.500 X 1,000 X 5,000 X 1.000 K000 X Segment margin 1.750 X 7.500 X 9.250 X Less: Common fixed expenses 7,500 Operating income (loss) 1,750 x SUSILO Decision. She consults wom, punimes vice president of marketing Required: 1. Jim believes that by increasing advertising by $1,000 ($250 for the scented line and $750 for the musical line), sales of those two lines would increase by 30% Prepare segmented income statements based on Jim's assumptions, Note: Enter all amounts as positive numbers except subtotals, if applicable. Fun Time Segmented Income Statement Musical Total Scented 13,000 19.500 Regular 25,000 12.500 $7.500 9.100 15.600 37.2007 Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses Segment margin 2.00 3.900 12,500 20.00 4.250 5,750 2007 13.000 -350 | | 9.500 7.300 Less: Common fixed expenses 7.500 Operating income (loss) -200 Feedback Check My Won Fill in amounts using increased advertising and increased sales. 2. Jim warns Kathy that eliminating the scented and musical lines would lower the sales of the regular line by 20% Prepare an income statement for Fun Time assuming the Scented and Musical greeting card lines are dropped Note: Enter all amounts as positive numbers except subtotals, if applicable. FunTime Income Statement (Regular Greeting Cards only) Sales 20,000 TODO Less: Variable expenses Contribution margin Less: Fixed expenses 10,500 Operating income (loss) 18.000 -500 Feedback Check My Wort Fil in amounts assuming a 20% decrease in sales of the regular greeting cards. Remember to include relevant fixed costs. Review the "How to Prepare a Segmented Income Statement example in your text
