Reference no: EM131789504
Assignment
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 $20 more. With rare exceptions, the store also sells a headset when a system is sold. The headset can be used with either system. Variable-costing income statements for the three products follow:
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System A
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System B
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Headset
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Headset Sales
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$ 45,000
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$ 32,500
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$ 8,000
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Less: Variable expenses
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20,000
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25,500
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3,200
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Contribution margin
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$25,000
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$7,000
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$4,800
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Less: Fixed costs *
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10,000
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18,000
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2,700
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Operating income (loss)
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$15,000
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$(11,000)
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$2,100
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* 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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