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show calculations Spartans Company makes three products: spears, javelins, and widgets. Below is the segment income statement for the past year. Based on the current
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Spartans Company makes three products: spears, javelins, and widgets. Below is the segment income statement for the past year. Based on the current analysis, all three products appear to be profitable (i.e. have positive contribution margins). However, Terry, the Controller, is concerned because the overall operating margin is less than 10% of sales, which is low by industry standards. Terry has gathered additional information on fixed costs and usage in order to better understand the costs. - Of the $260,000 factory overhead, $25,000 results from materials handling activities and $150,000 from machine setups (the remainder was not specifically traceable and remains as "factory overhead"). - Of the $140,000 selling and administrative costs, $90,000 was attributable to customer service activities (the remainder was not specifically traceable and remains as "selling and admin costs"). The following information on activities, cost drivers, and usage was gathered from Production and Marketing: Based on the current analysis, all three products appear to be profitable (i.e. have positive contribution margins). However, Terry, the Controller, is concerned because the overall operating margin is less than 10% of sales, which is low by industry standards. Terry has gathered additional information on fixed costs and usage in order to better understand the costs. - Of the $260,000 factory overhead, $25,000 results from materials handling activities and $150,000 from machine setups (the remainder was not specifically traceable and remains as "factory overhead"). - Of the $140,000 selling and administrative costs, $90,000 was attributable to customer service activities (the remainder was not specifically traceable and remains as "selling and admin costs"). The following information on activities, cost drivers, and usage was gathered from Production and Marketing: In addition, Widgets require specialized equipment costing $35,000 per year (this amount is currently included in "factory overhead" but should be assigned to Widgets as a direct fixed cost). a. The total common factory fixed costs are $260,000. Use the information above to determine how much of the factory overhead can be attributed to each model as direct fixed costs, and how much will be unallocated (i.e. remain as common fixed costs). b. The total common selling and administration fixed costs are $260,000. Use the information above to determine how much of the selling and admin costs can be attributed to each model as direct fixed costs, and how much will be unallocated (i.e. remain as common fixed costs). c. Recompute the segmented income statement using the additional information from (a) and (b). d. Assume that Spartans Company is considering dropping any product line with a negative product margin. Which product (if any) should Spartans drop? What will be the company net operating income after this change Step by Step Solution
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