Prepare a new contribution format segmented income statement

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Reference no: EM13509503

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-wheat cereal, pancake mix, and flour. Each product sells for $10 per package. Materials, labor, and other variable production costs are $4.30 per bag of wheat cereal, $5.50 per bag of pancake mix, and $3.10 per bag of flour. Sales commissions are 10% of sales for any product. All other costs are fixed.

The mill's income statement for the most recent month is given below:

 

 

 

 

Product Line

 

Total
Company

Wheat
Cereal

Pancake
Mix

Flour

 

  Sales

$

990,000

 

$

330,000

 

$

430,000

 

$

230,000

 

 

 













 

  Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

       Materials, labor, and other

 

449,700

 

 

141,900

 

 

236,500

 

 

71,300

 

 

       Sales commissions

 

99,000

 

 

33,000

 

 

43,000

 

 

23,000

 

 

       Advertising

 

139,380

 

 

60,900

 

 

52,200

 

 

26,280

 

 

       Salaries

 

105,000

 

 

51,000

 

 

21,000

 

 

33,000

 

 

       Equipment depreciation

 

49,500

 

 

16,500

 

 

21,500

 

 

11,500

 

 

       Warehouse rent

 

19,800

 

 

6,600

 

 

8,600

 

 

4,600

 

 

       General administration

 

90,000

 

 

30,000

 

 

30,000

 

 

30,000

 

 

 













 

  Total expenses

 

952,380

 

 

339,900

 

 

412,800

 

 

199,680

 

 

 













 

  Net operating income (loss)

$

37,620

 

$

(9,900)

 

$

17,200

 

$

30,320

 

 

 

























 


 

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 40% of the time to make wheat cereal, 50% 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 39,600 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 17,600 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' management is anxious to improve the mill's 3.80% 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.

Reference no: EM13509503

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