Question

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
Revenues	$	3,312,200
Expenses:
Salaries		982,000
Personnel costs		245,500
Occupancy costs		202,000
Reimbursement of member costs to local chapters		560,000
Other membership services		510,000
Printing and paper		329,000
Postage and shipping		195,000
Instructors’ fees		78,000
General and administrative		35,000
Total expenses		3,136,500
Excess of revenues over expenses	$	175,700

The board of directors of Music Teachers, Inc., has requested that a segmented income statement be prepared showing the contribution of each segment to the association. The association has four segments: Membership Division, Magazine Subscriptions Division, Books and Reports Division, and Continuing Education Division. Mike Doyle has been assigned responsibility for preparing the segmented income statement, and he has gathered the following data:

a. The 19,700 members of the association pay dues of $100 per year, of which $20 covers a one-year subscription to the Teachers’ Forum. Other benefits include membership in the association and chapter affiliation. The portion of the dues covering the magazine subscription ($20) should be assigned to the Magazine Subscriptions Division.

b. A total of 2,700 one-year subscriptions to Teachers’ Forum were also sold last year to nonmembers and libraries at $36 per subscription. In addition to subscriptions, the journal generated $105,000 in advertising revenues.

c. The costs to produce the Teachers’ Forum magazine included $9 per subscription for printing and paper and $4 per subscription for postage and shipping.

d. A total of 28,900 technical reports and professional texts were sold by the Books and Reports Division at an average selling price per unit of $25. Average costs per publication were $4 for printing and paper and $2 for postage and shipping.

e. The association offers a variety of continuing education courses to both members and nonmembers. The one-day courses had a tuition cost of $75 each and were attended by 2,500 students. A total of 1,840 students took two-day courses at a tuition cost of $125 for each student. Outside instructors were paid to teach some courses.

f. Salary costs and space occupied by division follow:

	Salaries			Space Occupied (square feet)
Membership	$	215,000		3,000
Magazine Subscriptions		151,000		1,000
Books and Reports		332,000		1,000
Continuing Education		192,000		2,000
Corporate staff		92,000		3,000
Total	$	982,000		10,000

Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $202,000 in occupancy costs includes $60,000 in rental cost for a warehouse used by the Books and Reports Division for storage purposes. Assume that this cost could be avoided if the division were eliminated.

g. Printing and paper costs other than for magazine subscriptions and for books and reports relate to the Continuing Education Division.

h. General and administrative expenses include costs relating to overall administration of the association as a whole. The company’s corporate staff does some mailing of materials for general administrative purposes.

The expenses that can be traced or assigned to the corporate staff, as well as any other expenses that are not traceable to the segments, will be treated as common costs. It is not necessary to distinguish between variable and fixed costs.

Required:

1. Prepare a segmented income statement for Music Teachers, Inc. This statement should show the segment margin for each division as well as results for the association as a whole.

Answer 1

Music Teachers, Inc. Sales: Membership dues (19,700 x $100) Assigned to Magazine Subscriptions Division (19,700 x $20) Assigned to Membership Division Non-member magazine subscriptions (2,700 x $36) 1970000 394000 1576000 97200 722500 Reports and texts (28,900 x $25) Continuing education courses: One-day (2,500 x $75) Two-day (1,840 x $125) Total revenue 187500 230000 417500 Salary and personnel costs: Membership Division Magazine Subscriptions Division Books and Reports Division Continuing Education Division Total assigned to divisions Corporate staff Total Salaries Personnel Costs (25% of Salaries) 215000 53750 151000 37750 332000 83000 192000 48000 890000 222500 92000 23000 982000 245500 Occupancy costs ($142,000 allocated + $60,000 direct to the Books and Reports Division = $202,000): Allocated to: Membership Division ($142,000 x 0.2) 28400 Magazine Subscriptions Division ($142,000 x 0.2) 28400 Books and Reports Division ($142,000 x 0.3 + $60,000) 102600 Continuing Education Division ($142,000 x 0.2) 28400 Corporate staff ($142,000 x 0.1) 14200 Total occupancy costs 202000 329000 Printing and paper costs Assigned to: Magazine Subscriptions Division (22,400 x $9) Books and Reports Division (28,900 x $4) Remainder-Continuing Education Division 201600 115600 317200 11800 195000 Postage and shipping costs Assigned to: Magazine Subscriptions Division (22,400 x $4) Books and Reports Division (28,900 x $2) Remainder-corporate staff 89600 57800 147400 47600

Division Association Magazine Books & Continuing Total Membership Subscriptions Reports Education 1576000 394000 97200 105000 1970000 97200 105000 722500 417500 3312200 722500 417500 417500 1576000 596200 722500 215000 53750 28400 560000 510000 151000 37750 28400 332000 83000 102600 192000 48000 28400 Sales: Membership dues Non-member magazine subscriptions Advertising Reports and texts Continuing education courses Total revenues Expenses traceable to segments: Salaries Personnel costs Occupancy costs Reimbursement of member costs to local chapters Other membership services Printing and paper Postage and shipping Instructors' fees Total traceable expenses Division segment margin Common expenses not traceable to divisions: Salaries-corporate staff Personnel costs Occupancy costs Postage and shipping General and administrative Total common expenses Excess of revenues over expenses 890000 222500 187800 560000 510000 329000 147400 78000 2924700 387500 11800 201600 89600 115600 57800 1367150 208850 508350 87850 691000 31500 78000 358200 59300 92000 23000 14200 47600 35000 211800 175700