Segmented Income Statements, Adding and Dropping Product Lines Dantrell Palmer has just been appointed manager of Kirchner Glass Products Division. He has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated and Dantrell will be reassigned as an assistant divisional manager in another division. The divisional income statement for the most recent year is as follows: Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses Divisional margin Less: Common fixed expenses (allocated) Divisional profit (loss) $4,590,000 3,953,450 $636,550 675,000 $(38,450) 200,000 $(238,450) Upon arriving at the division, Dantrell requested the following data on the division's three products: Product A Product B Product C Sales (units) 12,000 14,500 10,000 Unit selling price $150 $120 $70 Unit variable cost $100 $84 $107 Direct fixed costs $100,000 $430,000 $250,000 He also gathered data on a proposed new product (Product D). If this product is added, it would displace one of the current products; the quantity that could be produced and sold would equal the quantity sold of the product it displaces, although demand limits the maximum quantity that could be sold to 20,000 units. Because of specialized production equipment, it is not possible for the new product to displace part of the production of a second product. The information on Product D is as follows: Unit selling price $80 Unit variable cost 30 Direct fixed costs 250,000 1. Prepare segmented income statements for Products A, B, and C. Kirchner Glass Products Division Segmented Income Statement Products BC Sales 1,800,000 $ 1,740,000 700,000 Total 4,240,000 Less: Variable expenses 1,200,000 1,070,000 Contribution margin 600,000 -370,000 Less: Direct fixed expenses 100,000 Product margin 500,000 Less: Common fixed expenses 200,000 Operating income (loss) Feedback Which product has the highest product margin? AV 2. Assume that Dantrell decides to produce products A and D for the coming year. Prepare the segmented income statements for these two products. Kirchner Glass Products Division Segmented Income Statement Products Total Sales 1 Less: Variable expenses Contribution margin Less: Direct fixed expenses Product margin Less: Common fixed expenses Operating income Feedback By how much will profits improve given the combination assumed above? Enter your answer in dollars