Tampermure Company has three product segments: Prefabrications, Castings, and Forging. Forging seems to be unprofitable and management is considering dropping the segment entirely.

Fixed Costs have been separated into Direct and Common. Direct Fixed Costs are correlated to the product line. Common Fixed Costs are facility level activities allocated as a percentage of total revenue.

Required:

Compute the allocation of Common Fixed Costs and Net Operating Income for each segment and the total.

Prefabrications Casting Forging Total

Sales $$120,000$ $$118,000$ $$62,000$ $$300,000$

Variable Cost $71,00078,00046,000195,000$

Contribution Margin $49,00040,00016,000105,000$

Direct Fixed Costs $12,0009,0007,00028,000$

Segment Margin $37,00031,0009,00077,000$

Common Fixed Costs $60,000$

Net Operating Income

Tampermure Company's management recommends that Forging be dropped immediately to increase profits. Show what happens to Tampermure Company's income statement if this happens.

Hint: Use the original data to fill and compute amounts.

Prefabrications Casting Forging Total

Sales $$-$

Variable Cost $-$

Contribution Margin $-$

Direct Fixed Costs $-$

Segment Margin $-$

Common Fixed Costs $-$

Net Operating Income $$-$

Management believes that by dropping Forging, sales of Prefabrications and Casting will decrease. What will the income statement look like if this happens?

Hint: Use the original data to fill and compute amounts.

Decrease in Prefabrications Sales $10\%$

Decrease in Casting Sales $15\%$

Prefabrications Casting Forging Total

Sales $$-$

Variable Cost $-$

Contribution Margin $-$

Direct Fixed Costs $-$

Segment Margin $-$

Common Fixed Costs $-$

Net Operating Income $$-$

To prevent sales of Prefabrications and Casting from decreasing, management proposes launching a marketing campaign to increase the remaining segments' sales, but this will also increase common costs. What will the income statement look like if this happens?

Hint: Use the original data to fill and compute amounts.

Increase to Common Fixed Costs $$20,000$

Increase to Sales of Prefabrications $15\%$

Increase to Sales of Casting $20\%$

Prefabrications Casting Forging Total

Sales $$-$

Variable Cost $-$

Contribution Margin $-$

Direct Fixed Costs $-$

Segment Margin $-$

Common Fixed Costs $-$

Net Operating Income $$-$

Should Tempermure Company drop Forging?