Question

Case 6-30 Service Organization; Segment Reporting [LO6-4] Music Teachers, Inc., is an educational association for music teachers that has 19,700 members. The association operates from a central headquarters but has local membership chapters throughout the United States. Monthly meetings are held by the local chapters to discuss recent developments on topics of interest to music teachers. The association's magazine, Teachers' Forum, is issued monthly with features about recent developments in the field. The association publishes books and reports and also sponsors professional courses that qualify for continuing professional education credit. The association's statement of revenues and expenses for the current year is presented below. Music Teachers, Inc. Statement of Revenues and Expenses For the Year Ended November 30 $3,336,700 Revenues Expenses: Salaries 960,000 240,000 239,000 550,000 560,000 Personnel costs Occupancy costs Reimbursement of member costs to local chapters Other membership services Printing and paper 321,000 Postage and shipping 165,000 75,000 31,000 3,141,000 Instructors' fees General and administrative Total expenses 195,700 Excess of revenues over expenses The board of directors of Music Teachers, Inc., has requested that a segmented income statement be prepared

Answer 1

Step 1 - Salary and personnel costs: Salary Costs Membership Division Magazine Subscriptions Division Books and Reports Division Continuing Education Division Total assigned to divisions Corporate staff Totals $225,000 $158,000 $302,000 $186,000 $871,000 $89,000 $960,000 Personnel Cost $56,250 ($225000 x 25%] $39,500 ($158000 x 25%] $75,500 [$302000 x 25%] $46,500 ($186000 x 25%] $217,750 $22,250 ($89000 x 25%] $240,000 Step 2 - Allocation of Occupancy Costs: Membership Division Magazine Subscriptions Division Books and Reports Division Continuing Education Division Total assigned to divisions Corporate staff Totals Occupancy Costs $54,600 [($239,000 - $57,000) x 3,000 / 10,000] $18,200 [($239,000 - $57,000) 1,000 / 10,000) $75,200 [($239,000 - $57,000) x 1,000 / 10,000] + $57,000 $36,400 [($239,000 - $57,000) x 2,000 / 10,000) $184,400 $54,600 [($239,000 - $57,000) x 3,000 / 10,000] $239,000

Step 3 - Allocation of Printing and Paper Costs: Magazine Subscriptions Division Books and Reports Division Continuing Education Division Totals Print & Paper $33,300 (3,700 x $9] $112,400 (28,100 x $4] $175,300 [Balance allocated to this division --> $321000 - $33300 - $112400 = $175300] $321,000 Step 4 - Allocation of Postage and Shipping Costs: Post & Ship Costs Magazine Subscriptions Division Books and Reports Division Other Expenses Totals $14,800 (3,700 x $4] $56,200 [28,100 x $2] $94,000 [Balance allocated to this division --> $165000 - $14800 - $56200 = $94000] $165,000

Step 5 - Allocation of Revenues: Membership Division Magazine Subscriptions Division Non-member Subscription Advertising (Direct) Books and Reports Division Continuing Education Division Totals $394,000 $133,200 $106,000 Revenues $1,576,000 [Balancing Figure allocated --> ($3,336,700 - $133,200 - $106,000 - $702,500 - $425,000) < $80 / $100 = $1,576,000] [Balancing Figure allocated --> ($3,336,700 - $133,200 - $106,000 - $702,500 - $425,000) < $20 / $100 = $394,000] [3,700 x $36] $633,200 [= Total revenues allocated to Magazine Subscriptions Division] $702,500 [28,100 x $25] $425,000 [(2,500 x $75) + (1,900 x $125)] $3,336,700

Books & Reports Continuing Education Total Membership $0 $0 $0 Segmental Income Statement: Music Teachers Inc. Segmented Income Statement For the Year Ended November 30 Association Magazine Subscription Sales: Membership Division $1,576,000 $1,576,000 $0 Magazine Subscriptions Division $394,000 $394,000 Non-member Subscription $133,200 $133,200 Advertising (Direct) $106,000 $106,000 Books and Reports Division $702,500 $0 Continuing Education Division $425,000 $0 Total Revenues $3,336,700 $1,576,000 $633,200 Expenses traceable to segments: Salary Costs $871,000 $225,000 $158,000 Personnel Costs $217,750 $56,250 $39,500 Occupancy Costs $184,400 $54,600 $18,200 Reimbursement of memb.costs $0 Other membership services $0 Printing and Paper Costs $321,000 $0 $33,300 Postage and Shipping Costs $71,000 $14,800 Instructor's fees $0 $0 Total traceable costs $1,665,150 $335,850 $263,800 $702,500 $0 $702,500 $425,000 $425,000 $0 $302,000 $75,500 $75,200 $0 $0 $112,400 $56,200 $186,000 $46,500 $36,400 $0 $0 $175,300 $0 $0 $o $0 $0 $621,300 $444,200

$1,671,550 $1,240,150 $369,400 $81,200 ($19,200) [Total Traceable Revenues - Traceable Costs] Segmental income Common expenses non-traceable: Salary Costs Personnel Costs Occupancy Costs Reimbursement of memb.costs Other membership services Printing and Paper Costs Postage and Shipping Costs Instructor's fees General and Administrative Total common expenses Excess of revenues over expenses $89,000 [Related to Corporate Staff] $22,250 [Related to Corporate Staff] $54,600 [Related to Corporate Staff] $550,000 [Direct] $560,000 [Direct] $0 $94,000 (Unassigned costs] $75,000 [Direct] $31,000 [Direct] $1,475,850 $195,700 [Segmental income - Total common costs]