Wilmore Ltd. is a large company with several manufacturing divisions. In its Consumer Products Division, it manufactures a wide range of gadgets for kitchen and bath. Income statements have regularly been prepared for each Division, and much discussion has occurred in the past about the fixed costs allocated to each division. Sandy Duncan, the manager of the Consumer Products Division is satisfied that the allocated fixed costs have been properly assigned to the Division.

The preparation of a segmented income statement for the two separate product lines has been prepared for the first time, for the year ended November 30 2021, as follows:

	Consumer Products Division	Kitchen Products	Bath Products
Sales revenue	600,000	360,000	240,000
Variable costs	360,000	198,000	162,000
Contribution margin	240,000	162,000	78,000
Fixed costs	200,000	120,000	80,000
Operating income	40,000	42,000	(2,000)

Sandy is being pressured to drop the bath product lines from the Division. She is satisfied that the variable costs have been properly allocated between the two product lines, as the resulting contribution margin percentages are as expected. No discussion occurred, however, around the allocation of the fixed costs between the two product lines. Based on Sandys knowledge of the production costs, she estimates that the committed fixed costs for the kitchen products line are $70,000 annually, and for the bath products the committed fixed costs are $50,000. Her salary is $80,000 annually.

Required:

3 a) Redo the segmented income statement for the Consumer Products Division and the two product lines, properly allocating the fixed costs. (Dont worry about the heading.) Based on this information, should the bath products line be discontinued? Why or why not?

5 b) Some managers believe that the full amount of the fixed costs should be allocated to the product lines, as done originally by the company. Describe the advantages and disadvantages of allocating all fixed costs. Which approach do you recommend, and why?

2 c) Calculate the markup on variable cost for each of the two product lines, if all variable costs are manufacturing costs.

4 d) Explain how value-based and/or target costing could be used to improve the profits generated by the Consumer Products Division.