Question

Hepras, Inc., has two product lines: routers and ethernet switches. During the current month, the two product lines reported the following results.

Routers(1st set of numbers for example the 610,000) Switches (2nd set of numbers for example the 870,000)

Sales $610,000 $870,000

Variable costs (as a percentage of sales) 40% 45%

Traceable fixed costs $250,000 $125,000

In addition, fixed costs common to both product lines amounted to $229,000.

Prepare an income statement showing percentages as well as dollar amounts. Conclude your statement with income from operations for the business and with the responsibility margin for each product line. (Round percentage answers to 2 decimal place. i.e. 0.1234 should be considered as 12.34%.)

Answer 1

HEPRAS INC
Responsibility Income statement
For the current Month
	Entire Company	Routers	Switches
	Dollars (routers + switches)	Percentage of sales	Dollars	Percentage of sales	Dollars	Percentage of sales
Sales	$1,480,000	100%	$610,000	100%	$870,000	100%
Variable costs	$635,500	42.94%($635,500/$1,480,000)	$244,000 ($610,000 ×40%)	40%	$391,500 ($870,000 ×45%)	45%
Contribution margin (sales - Variable cost)	$844,500	57.06%	$366,000	60%	$478,500	55%
Fixed cost traceable to product	$375,000	25.34% ($375,000/$1,480,000)	$250,000	40.98% ($250,000/$610,000)	$125,000	14.37% ($125,000/$870,000)
Product responsibility margin (Contribution margin - Fixed cost)	$469,500	31.72%	$116,000	19.02%	$353,500	40.63%
Common fixed cost	$229,000	15.47%
Income from operations	$240,500	16.25%