Question

	Book Division				Magazine Division				Total
Sales Revenue	$	7,820,000			$	3,320,000			$	11,140,000
Cost of Goods sold
Variable costs		2,005,000				1,003,000				3,008,000
Fixed costs		77,700				202,000				279,700
Gross Profit	$	5,737,300			$	2,115,000			$	7,852,300
Operating Expenses
Variable		137,000				200,000				337,000
Fixed		3,918,000				2,191,000				6,109,000
Net income	$	1,682,300			$	(276,000	)		$	1,406,300

The variable operating expenses are directly attributable to the division. Of the total fixed costs (manufacturing and operating), $4,002,000 are shared between the divisions, allocated $2,813,000 to the Book Division and the remaining to the Magazine Division. The remainder of the fixed costs are directly attributable to each division.

Required:

1. Present the financial information in the form of a segmented income statement (using the contribution margin approach).

2. What will be the impact on net income if the Magazine Division is eliminated?

Answer 1

1	Contribution income statement
		Book Division	Magazine Division	Total
	Sales	$78,20,000	$33,20,000	$1,11,40,000
	Variable cost(manufacturing and operating)	$21,42,000	$12,03,000	$33,45,000
	Contribution margin	$56,78,000	$21,17,000	$77,95,000
	Allocated Fixed Cost(manufacturing and operating)	$28,13,000	$11,89,000	$40,02,000
	Net Income before allocation of Direct fixed cost	$28,65,000	$9,28,000	$37,93,000
	Direct Fixed costs(6109000+279700-4,002,000)			$23,86,700
	Net Income			$14,06,300
2	If magine division is eliminated then the Net income of the compnay will decrease by $928,000