Vega Foods, Inc., has recently purchased a small mill that it intends to operate as one of its subsidiaries. The newly acquired mill has three products that it offers for sale%u2014wheat cereal, pancake mix, and flour. Each product sells for $10 per package. Materials, labor, and other variable production costs are $4.40 per bag of wheat cereal, $5.60 per bag of pancake mix, and $3.20 per bag of flour. Sales commissions are 10% of sales for any product. All other costs are fixed.

The mill%u2019s income statement for the most recent month is given below:

				Product Line
	Total Company			Wheat Cereal			Pancake Mix			Flour
Sales	$	1,020,000		$	340,000		$	440,000		$	240,000
Expenses:
Materials, labor, and other		472,800			149,600			246,400			76,800
Sales commissions		102,000			34,000			44,000			24,000
Advertising		128,000			56,800			48,200			23,000
Salaries		109,000			54,000			21,000			34,000
Equipment depreciation		51,000			17,000			22,000			12,000
Warehouse rent		20,400			6,800			8,800			4,800
General administration		96,000			32,000			32,000			32,000
Total expenses		979,200			350,200			422,400			206,600
Net operating income (loss)	$	40,800		$	(10,200)		$	17,600		$	33,400

The following additional information is available about the company:

a.	The same equipment is used to mill and package all three products. In the above income statement, equipment depreciation has been allocated on the basis of sales dollars. An analysis of equipment usage indicates that it is used 30% of the time to make wheat cereal, 60% of the time to make pancake mix, and 10% of the time to make flour.
b.	All three products are stored in the same warehouse. In the above income statement, the warehouse rent has been allocated on the basis of sales dollars. The warehouse contains 40,800 square feet of space, of which 8,000 square feet are used for wheat cereal, 14,000 square feet are used for pancake mix, and 18,800 square feet are used for flour. The warehouse space costs the company $0.50 per square foot per month to rent.
c.	The general administration costs relate to the administration of the company as a whole. In the above income statement, these costs have been divided equally among the three product lines.
d.	All other costs are traceable to the product lines.

Vega Foods%u2019 management is anxious to improve the mill%u2019s 4.00% margin on sales.

Required:

1.

Prepare a new contribution format segmented income statement for the month. Adjust the allocation of equipment depreciation and warehouse rent as indicated by the additional information provided. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your final answers to the nearest dollar amount.)

	Total Company	Wheat Cereal	Pancake Mix	Flour
(Click to select) Sales commissions General administration Contribution margin Net operating income (loss) Sales Materials, labor & other Advertising Salaries	$	$	$	$
Variable expenses:
(Click to select) Contribution margin Net operating income (loss) Materials, labor, and other Advertising Equipment depreciation Salaries Sales General administration
(Click to select) Sales Net operating income (loss) Advertising Sales commissions Salaries General administration Equipment depreciation Contribution margin
Total variable expenses
(Click to select) Contribution margin Gross margin
Traceable fixed expenses:
(Click to select) Materials, labor & other Product line segment margin Sales commissions Contribution margin Net operating income (loss) General administration Sales Advertising
(Click to select) General administration Salaries Net operating income (loss) Materials, labor & other Product line segment margin Contribution margin Sales commissions Sales
(Click to select) Equipment depreciation Materials, labor & other Sales commissions Sales Net operating income (loss) Contribution margin General administration Product line segment margin
(Click to select) Materials, labor & other Sales commissions General administration Net operating income (loss) Product line segment margin Sales Warehouse rent Contribution margin
Total traceable fixed expenses
(Click to select) Advertising Product line segment margin Contribution margin Materials, labor & other, Sales commissions Sales commissions Net operating income (loss) Sales Salaries	$	$	$	$
Common fixed expenses:
(Click to select) Salaries Sales General administration Materials, labor & other Advertising Sales commissions Contribution margin Equipment depreciation
(Click to select) Net operating loss Net operating income	$

2.	After seeing the income statement in the main body of the problem, management has decided to eliminate the wheat cereal because it is not returning a profit, and to focus all available resources on promoting the pancake mix.

Based on the statement you have prepared, do you agree with the decision to eliminate the wheat cereal?

	No
	Yes