Trendy Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.
..........................................Sweaters............... Jackets
Sales................................... $190,000............. $420,000
Variable cost of goods sold.......... 125,000............... 180,000
Direct fixed overhead.................. 25,000................ 35,000
A sales commission of 5 percent of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $20,000 for the sweater line and $50,000 for the jacket line. Common fixed overhead for the factory was estimated to be $45,000. Common selling and administrative expense was estimated to be $15,000.
Required:
1. Prepare a segmented income statement for Trendy for the coming year, using variable costing.
2. Conceptual Connection: Suppose that next year, all revenues and costs are expected to remain the same except for direct fixed overhead expense, which will go up by $12,000 for one of the product lines due to costs related to new equipment. Does it matter which line (sweaters or jackets) requires the new equipment? Why?