Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 56

Segmented income statement Vogel Co. produces three models of heating and air conditioning thermostat components. The following table summarizes data about each model:

	BV19	HV41	MV12
Selling price per unit	$ 36	$ 60	$ 30
Contribution margin per unit	12	18	6
Units sold per month	4,000	2,000	6,000
Total contribution margin	$48,000	$36,000	$36,000
Direct fixed expenses	21,600	17,100	24,300
Segment margin	$26,400	$18,900	$11,700
Allocated company fixed expenses	10,000	5,000	15,000
Operating income (loss)	$16,400	$13,900	$ (3,300)

Required:

a. Criticize the preceding presentation. On what basis does the $30,000 of company fixed expenses appear to be allocated?

---

b. Calculate the effect on total company net income if the MV12 model were discontinued.

---

c. Calculate the contribution margin ratio for each model.

---

d. If an advertising campaign focusing on a single model were to result in an increase of 5,000 units in the quantity of units sold, which model should be advertised? Explain your answer.

---

e. If an advertising campaign focusing on a single model were to result in an increase of $15,000 in revenues, which model should be advertised? Explain your answer.

Step 1 of 6

Segmented income statement:

Segmented income statement : This income statement gives emphasis on the segment in spite of the performance as a whole in the company’s financial accounts. A contribution margin system is used to assess the results of different segments.

By extracting the information :

Data about models produced by Vogel Co are as follows :

Table 1: Models produced by Vogel Co.

Particulars	Models
	BV19 ($)	HV41 ($)	MV12 ($)
Selling price per unit	$36	$60	$30
Contribution margin per unit	12	18	6
Units sold per month	4,000	2,000	6,000
Total contribution margin	48,000	36,000	36,000
Direct fixed expenses	21,600	17,100	24,300
Segment margin	26,400	18,900	11,700
Allocated company fixed expenses	10,000	5,000	15,000
Operating income(loss)	$16,400	$13,900	$3,300