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: Scented Musical Regular Total Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses $ 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 S (1.000) $ (3,000) $ 9,500 $ 6,500 7,500 $(1,000) Segment margin Less: Common fixed expenses Operating income (loss) 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: 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. Note: Enter all amounts as positive numbers except subtotals, if applicable. Fun Time Segmented Income Statement Scented Musical Total Regular 25,000 Sales 57,500 13.000 $19,500 7,000 X 12,000 x Less: Variable expenses 12.500 31.500 X 6,000 X 26,000 X 7,500 X $ 12,500 5.000 x 3.000 4,000 X 12,000 X 1.750 X Contribution margin Less: Direct fixed expenses Segment margin Less: Common fixed expenses Operating income (loss) 1.750X $ 9.500 13.000 x 7.500 5,300 X Feedback Check My Work Fill in amounts using increased advertising and increased sales. Review the "How to Prepare a Segmented Income Statement" example in your text. If you were Kathy, how would you react to this information? Kathy should accept this proposal. The 30% sales increase, coupled with the increased advertising. Increases the loss. Both scented and musical product-line profits increase. However, more must be done. If the scented and musical product margins remain negative, the two products may need to be dropped 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 Less: Variable expenses 12.500 X Contribution margin 7.500 X Less: Fixed expenses 10.50 Operating income (loss) 3,000 X Feedback Check My Wort Fill 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. Given this information, would it be profitable to eliminate the scented and musical lines? While dropping the two lines results in a loss of $ 3000 X it is worse than the alternative offered in Requirement 1. Foodba Chuck My Vio Compare the income statement prepared in Requirement #2 showing the dropped segments to the original segmented income statement and Wote: Enter all amounts as positive numbers except subtotals, if applicable. Fun Time Segmented Income Statement Total Scented Regular 19,500 X $ 22,500 Sales 42,000 x Less: Variable expenses 12.000 x 12,000 X 24,000 X Contribution margin 7.500 X 10,509 x 18,000 X Less: Direct fixed expenses 5,000 X 3.000 8,000 X 1.750 X Segment margin 7.500 X 9.250 X Less: Common fixed expenses 7.500 1,750 X Operating income (loss) Feedback Check My Work Review the "How to Prepare a Segmented Income Statement example in your text. Based on your calculations above, identify the best combination for the firm, Drop musical line and keep scented line