Question

Segmented Income Statements, Product-Line Analysis

Alard Company produces blenders and coffee makers. During the past year, the company produced and sold 65,000 blenders and 75,000 coffee makers. Fixed costs for Alard totaled $340,000, of which $184,000 can be avoided if the blenders are not produced and $142,500 can be avoided if the coffee makers are not produced. Revenue and variable cost information follows:

	Blenders	Coffee Makers
Selling price per appliance	$24	$29
Variable expenses per appliance	18	27

Required:

1. Prepare segmented income statements. Separate direct and common fixed costs. Enter all amounts as positive numbers.

Alard Company
Segmented Income Statement
	Blenders	Coffee Makers	Total
	$	$	$
	$	$	$
	$	$	$
			$

2. What would the effect be on Alard’s profit if the coffee maker line is dropped? The blender line?

If the coffee maker line is dropped, profits will   by $, the segment margin. If the blender line is dropped, profits will   by $.

3. What would the effect be on firm profits if an additional 10,000 blenders could be produced (using existing capacity) and sold for $21.50 on a special-order basis? Existing sales would be unaffected by the special order. Enter all amounts as positive numbers.

Alard Company
Segmented Income Statement
	Blenders	Coffee Makers	Total
	$	$	$
Contribution margin	$	$	$
Segment margin	$	$	$
			$

Answer 1

1-Segment income Statement

	65000 untis	75000 untis	TOTAL
Details	Blenders	Coffe Makers
Sales	1,560,000.00	2,175,000.00	3,735,000.00
Costs
Fixed			340,000.00
Variable	1,170,000.00	2,025,000.00	3,195,000.00
Profit	390,000.00	150,000.00	200,000.00

2.

Only blenders,Coffee maker dropped

	65000 untis
Details	Blenders
Sales	1,560,000.00
Costs
Fixed	197,500.00
Variable	1,170,000.00
Profit	192,500.00

3.

Only Coffee,blenders dropped

	75000 untis
Details	Coffe Makers
Sales	2,175,000.00
Costs
Fixed	156,000.00
Variable	2,025,000.00
Profit	(6,000.00)

4.Special order case with existng Capacity.

	65000 untis+10,000 Unts	75000 untis	TOTAL
Details	Blenders	Coffe Makers
Sales-Regular	1,560,000.00	2,175,000.00	3,735,000.00
Sales-Special order	215,000.00	-	215,000.00
Total Sales	1,775,000.00	2,175,000.00	3,950,000.00
Costs
Fixed			340,000.00
Variable	1,350,000.00	2,025,000.00	3,375,000.00
Profit	425,000.00	150,000.00	235,000.00