Question
You answered this for me yesterday, but only part 1. I am needing help with parts 2 & 3, specifically calculating the fixed costs. Are
You answered this for me yesterday, but only part 1. I am needing help with parts 2 & 3, specifically calculating the fixed costs. Are you able to help with the other two segmented income statements?
AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $20 more. With rare exceptions, the store also sells a headset when a system is sold. The headset can be used with either system. Variable-costing income statements for the three products follow:
System A | System B | Headset | |
Sales | $ 45,000 | $ 32,500 | $ 8,000 |
Less: Variable expenses | 20,000 | 25,500 | 3,200 |
Contribution margin | $25,000 | $7,000 | $4,800 |
Less: Fixed costs * | 10,000 | 18,000 | 2,700 |
Operating income (loss) | $15,000 | $(11,000) | $2,100 |
* This includes common fixed costs totaling $18,000, allocated to each product in proportion to its revenues.
The owner of the store is concerned about the profit performance of System B and is considering dropping it. If the product is dropped, sales of System A will increase by 30%, and sales of headsets will drop by 25%. Round all answers to the nearest whole number.
Required: | |
1. | Prepare segmented income statements for the three products using a better format. |
2. | CONCEPTUAL CONNECTION:Prepare segmented income statements for System A and the headsets assuming that System B is dropped. Should B be dropped? |
3. | CONCEPTUAL CONNECTION:Suppose that a third system, System C, with a similar quality to System B, could be acquired. Assume that with C the sales of A would remain unchanged; however, C would produce only 80% of the revenues of B, and sales of the headsets would drop by 10%. The contribution margin ratio of C is 50%, and its direct fixed costs would be identical to those of B. Should System B be dropped and replaced with System C? |
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