Segmented income statement
Response to the following problem:
Vogel Co. produces three models of heating and air conditioning thermostat components. The following table summarizes data about each model:
|
|
BV19
|
HV41
|
MV12
|
|
Selling price per unit ............................................
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$ 2
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$ 20
|
$ 10
|
|
Contribution margin per unit ..............................
|
4
|
6
|
2
|
|
Units sold per month.............................................
|
3,000
|
1,500
|
4,500
|
|
Total contribution margin.....................................
|
$12,000
|
$9,000
|
$ 9,000
|
|
Direct fixed expenses...........................................
|
5,200
|
3,700
|
6,100
|
|
Segment margin ...................................................
|
$ 6,800
|
$5,300
|
$ 2,900
|
|
Allocated company fixed expenses ...................
|
3,333
|
1,667
|
5,000
|
|
Operating income (loss).......................................
|
$ 3,467
|
$3,633
|
$(2,100)
|
Required:
a. Criticize the preceding presentation. On what basis does the $10,000 of company fixed expenses appear to be allocated?
b. Calculate the effect on total company net income if the MV12 model were discontinued.
c. Calculate the contribution margin ratio for each model.
d. If an advertising campaign focusing on a single model were to result in an increase of 5,000 units in the quantity of units sold, which model should be advertised? Explain your answer.
e. If an advertising campaign focusing on a single model were to result in an increase of $15,000 in revenues, which model should be advertised? Explain your answer.