Question

Segmented Income Statements, Adding and Dropping Product Lines Dantrell Palmer has Just been appointed manager of Kirchner Glass Products Division. He has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated, and Dantrell will be reassigned as arn assistant divisional manager in another division. The divisional income statement for the most recent year is as follows: Sales Less: Variable expenses $4,590,000 ,953,450 $535,550 575,000 38,450) 200,000 238,450) Contribution margin Less: Direct fixed expenses Divisional margin Less: Comm on fixed expenses (allocated) Divisional profit (loss) Upon arriving at the division, Dantrell requested the following data on the division's three products: Product A 12,000 $150 $100 Product B 14,500 $120 $84 Product C 10,000 $70 $107 Sales (units) Unit selling price Unit variable cost Direct fixed costs $100,000 $425,000 $260,000 He also gathered data on a proposed new product (Product D). If this product is added, it would displace one of the current products; the quantity that could be produced and sold would equal the quantity sold of the product it displaces, although demand limits the maximum quantity that could be sold to 20,000 units. Because of specialized production equipment, it is not possible for the new product to displace part of the production of a second product. The information on Product D is as follows Unit selling price Unit variable cost Direct fixed costs 230,000 $80 30

Answer 1

1)

Kichner glass products division

Segmented income statement

Products

	A	B	C	total
Sales	$1,800,000	$1,740,000	$700,000	$4,240,000
Less . Variable cost	1,200,000	1,218,000	1,070,000	3,488,000
Contribute margin	$600,000	$522,000	$(370,000)	$752,000
Less .Direct fixed costs	100,000	425,000	260,000	785,000
Product margin	$500,000	97,000	$(630,000)	$(33,000)
Less .common fixed expenses				200,000
Operating profit (loss)				$(233,000)

Product -A    ,has the highest product margin

2)

Kirchner glass products division

Segmented income statement

Products

	A	D	total
Sales	$1,800,000	$1,600,000	$3,400,000
Less. variable cost	1,200,000	600,000	1,800,000
Contribution margin	$600,000	$1,000,000	$1,600,000
Less .direct fixed costs	100,000	230,000	330,000
Product margin	$500,000	$770,000	$1,270,000
Less .common fixed expenses			200,000
Operating profit (loss)			$1,070,000

By how much will profit improve given the combination assumed  above is. $837,000