Homework SourseKnitline Inc produces highend sweaters and jackets in a sing
Knitline Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.
A sales commission of 6% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $19,900 for the sweater line and $50,400 for the jacket line.
Common fixed overhead for the factory was estimated to be $48,000. Common selling and administrative expense was estimated to be $17,600.
Refer to the list below for the exact wording of a label or an amount description within your income statement.
1. Prepare a segmented income statement for Knitline for the coming year, using variable costing. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your income statement. If an amount is negative, first enter a minus sign (-).
Knitline Inc.
Segmented Income Statement
For the Coming Year
1
Sweaters
Jackets
Total
2
3
4
5
6
7
8
9
10
11
12
13
14
2. Suppose that next year, all revenues and costs are expected to remain the same except for direct fixed overhead expense, which will go up by $6,724 for one of the product lines due to costs related to new equipment. Does it matter which line (sweaters or jackets) requires the new equipment? Why?
Complete the statements below that outline the impact of the overhead expense increase. If an amount is negative, first enter a minus sign (-).
| Sweaters | Jackets | |
|---|---|---|
| Sales | $ 209,600 | $ 449,000 |
| Variable cost of goods sold | 145,500 | 196,600 |
| Direct fixed overhead | 25,400 | 47,800 |
Solution
1)
2)
a)For the company as a whole, operating income will : 67884-6724 =61160
b)For the sweater line, the segment’s margin will be $ -500 [6224-6724] In this case, if profitability is not expected to improve (either by increasing price or decreasing other costs), then sweater line(s) should be dropped.
c)For the jacket line, the segment’s margin will be 120536 [127260-6724].In this case, if profitability is not expected to improve (either by increasing price or decreasing other costs), then sweater line(s) should be dropped (since even after that expense ,the segment margin of jacket line is more than sweater line )
| Segmented Income statement | |||
| TOTAL | Sweaters | Jackets | |
| sales | 658600 | 209600 | 449000 |
| less:variable expense | |||
| Variable cost of sales | (342100) | (145500) | (196600) |
| sales commissions | (39516) | (12576) [209600*.06] | (26940) [449000*.06) |
| Total variable expense | (381616) | (158076) | (223540) |
| contribution margin | 276984 | 51524 | 225460 |
| Less:fixed cost | |||
| Direct fixed overhead | (73200) | (25400) | (47800) |
| Direct fixed selling and administrative expense | (70300) | (19900) | (50400) |
| Total traceable fixed cost | (143500) | (45300) | (98200) |
| Segment margin | 133484 | 6224 | 127260 |
| less:Common fixed cost [48000+17600] | (65600) | ||
| Net operating income | 67884 |
