Question

Music Teachers, Inc., is an educational association for music teachers that has 20,000 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	$	3,353,000
Expenses:
Salaries		972,000
Personnel costs		243,000
Occupancy costs		213,000
Reimbursement of member costs to local chapters		580,000
Other membership services		530,000
Printing and paper		326,000
Postage and shipping		189,000
Instructors’ fees		78,000
General and administrative		31,000
Total expenses		3,162,000
Excess of revenues over expenses	$	191,000

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 20,000 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 3,000 one-year subscriptions to Teachers’ Forum were also sold last year to nonmembers and libraries at $34 per subscription. In addition to subscriptions, the journal generated $116,000 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 28,400 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 1,900 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	$	218,000		3,000
Magazine Subscriptions		154,000		1,000
Books and Reports		336,000		1,000
Continuing Education		184,000		2,000
Corporate staff		80,000		3,000
Total	$	972,000		10,000

Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $213,000 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.

Music Teachers, Inc. Segmented Income Statement For the year ended November 30 Association Total Division Magazine Subscriptions Books & Reports Continuing Education Membership Sales: Membership dues Non-member journal 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

Answer 1

Total Membership Division Magazine Subscriptions Books and Reports Division Continuing Education Division 1600000 solution: In come statement sales membership due magazine subscription advertising technical reports and professional texts continuing education courses total revenue 400000 102000 116000 2000000 102000 116000 710000 425000 3353000 710000 425000 425000 1600000 618000 710000 5400 0 Traceable cost printing and paper postage and shipping salaries personnal cost (25% * salaries) occupancy cost Reimbursement of member costs to local chapters other membership service Instructor fees total traceable cost 326000 148800 892000 223000 167100 580000 530000 78000 2944900 218000 54500 45900 580000 530000 207000 92000 154000 38500 15300 113600 56800 336000 84000 75300 184000 46000 30600 78000 344000 1428400 506800 665700 segment margin 408100 171600 111200 44300 81000 common cost salaries-corporate staff personnal cost (25% of salaries) occupancy cost postage and shipping General and administrative total common cost 80000 20000 45900 40200 31000 217100 excess of revenue over expense 191000

Total Membership Division Magazine Subscriptions Books and Reports Division Continuing Education Division 20000*80 working sales membership due magazine subscription technical reports and professional texts continuing education courses 20000*20 3000*34 28400*25 2500*75+1900*125 Traceable cost printing and paper postage and shipping occupancy cost (20000+3000) *9 28400*4 326000-207000-113600 (20000+3000) *4 28400*2 (213000-60000) * 3000/10000 (213000-60000) * 1000/10000 60000+(213000-60000) * 2000/10000 (213000-60000) * 2000/10000 common cost occupancy cost postage and shipping (213000-60000) *3000/10000 189000-148800