Segmented Income Statements

Instructions: Use the tabs above to navigate back and forth between steps.

Objective:

Review basic steps of preparing variable costing segmented income statements.

- Click here to refer to the question information.

Introduction:

Lembro, Inc., a manufacturer of auto accessories, currently produces two product lines of universal car mats at its Poughkeepsie Plant:(1) rubber all-weather car mats and (2) carpeted car mats. The all-weather floor mats are designed to resist mud, spills, and other forms of abuse. They are easily hosed off whenever soiled with mud or a spilled drink. Years ago, Lembro's management chose to produce its all-weather mats with high quality thermoplastic rubber (TPR) instead of real rubber or PVC. TPR was selected because it not only avoided the strong odors of pure rubber or PVC, but it also made TPC mats better able to hold their color, shape and withstand temperature variations. The decision paid off as Lembro's TPR mats gained wide acceptance with a strong reputation for high quality. After more than a decade of experience with TPR mats, Lembro made the decision two years ago to begin producing carpeted car mats. Management was confident that a similar quality strategy would be successful for carpeted car mats.

Lembro's management understood that carpeted car mats involved a different market segment than the TPR mats. Carpeted mats would appeal to customers with a greater aesthetic preference. The carpet floor mats are made of a nylon weave attached (tufted) to a light rubber anti-slip, waterproof backing. The decision was made to produce carpeted mats with a tufted luxurious pile, a premium heel pad, and UV and stain resistance. The goal was to produce a universal luxury car mat that would be the only "value" priced car mat with luxury features-a mat that would be superior to the OEM mats and yet be reasonably priced.

Upon seeing the increase in sales revenue needed for the two products to generate an acceptable return on sales, John Hope then expressed concern about the continued viability of the Poughkeepsie plant. Jim Scott immediately pointed out that the problem is recent-coming only after the introduction of the new carpet mat line. Before the line was added, the return on sales was more than acceptable. Cathy was asked to prepare an income statement that would reflect the profit contribution of each product. John agreed that this would be useful information and they adjourned for lunch. Cathy prepared the segmented information available for a continued discussion and analysis in the afternoon.

While preparing the segmented income statement, Cathy observed that all-weather mats produced twice as much revenue as carpeted mats. Furthermore, the cost of materials for carpeted mats was three times the materials cost for all-weather mats. On the other hand, maintenance expense incurred for all-weather mats was four times the carpeted mat line. She also noted that direct fixed costs are - Select your answer -exclusive toshared withItem 1 a product line whereas common fixed costs are - Select your answer -exclusivesharedItem 2 by product lines.

Required:

1.

Using the information on revenue and expense relationships just provided and the other given information below, complete the segmented income statement: (Hint:Sales commissions are based on the sales dollars.)

Lembro, Inc. Segmented Income Statement For the Year Ended Poughkeepsie Plant
	Carpeted Mats	All-Weather Mats	Total
Sales Revenue: (100,000 @$ ; 400,000 @$ )	$	$	$30,000,000
Less variable expenses:
Direct materials			8,000,000
Direct labor	3,000,000	3,000,000	6,000,000
Maintenance			2,000,000
Power	200,000	600,000	800,000
Sales commissions			1,200,000
Contribution margin	$0	$12,000,000	$12,000,000
Less direct fixed costs:
Supervision	150,000	250,000	400,000
Advertising			1,000,000
Product margin	$	$11,000,000	$10,600,000
Less common fixed costs
Depreciation-machinery			1,000,000
Depreciation-plant			1,400,000
Inspecting products			2,000,000
Materials handling			1,500,000
Customer service			200,000
Sales administration			800,000
Landscape maintenance			700,000
Operating income			$3,000,000
Less taxes			1,200,000
Net operating income			$1,800,000

2.

Calculate the estimate after-tax return on sales for the all-weather mat product line if Carpeted Mats division is eliminated (round the percentage to two decimal places).

Net operating profit/sales = %

Summary Questions:

1.

Measuring - Select your answer -product-line profitabilityoverall profitabilityItem 17 is important because it allows managers to (Select "Yes" for the statements that are applicable, else please select "No" from the below dropdowns.):

emphasize certain products	- Select your answer -YesNoItem 18
make keep or drop decisions	- Select your answer -YesNoItem 19
calculate market share	- Select your answer -YesNoItem 20
obtain product-specific patents	- Select your answer -YesNoItem 21
decide which products merit additional time and attention	- Select your answer -YesNoItem 22

2.

- Select your answer -AllocationTraceabilityItem 23 of revenues and costs is the most important quality for accurately measuring product margin.