Segmented Income Statement

Please assist with the attached problem.

The following data pertain to Brown Brother’s Company operations for July.

Total Product X Product Y
Number of units sold… 10,000 12,000
Selling price per unit… $20,000 $25.00
Variable cost per unit:
Production… $9 $10.00
Selling & administration… $3 $3.75
Fixed Costs:
Production…. $155,000
Selling & administrative… $20,000

Only $50,000 of the fixed production costs is traceable to the production of Product X and $75,000 is traceable to Product Y. All of the selling and administrative costs are common costs that cannot be traced to either product.

a. Prepare a segmented income statement for Brown Brother’s using the following form:

Brown Brother’s
Income Statement
For the month ended July 31

Total Product X Product Y
Amount % Amount % Amount %
Sales…. $______ ____ $______ ____ $______ ____
Variable expenses:
Production… _______ ____ _______ ____ _______ ____
Selling and administrative… _______ ____ _______ ____ _______ ____
Total variable expenses… _______ ____ _______ ____ _______ ____
Contribution margin… _______ ____ _______ ____ _______ ____
Less traceable fixed expenses.. _______ ____ _______ ____ _______ ____
Product line segment margin.. _______ ____ $______ ____ $______ ____
Less common fixed expenses
not traceable to individual
production _______ ____
Selling and administrative… _______ ____
Total fixed expenses… _______ ____
Net operating income… $______ ____

b. Should either Product X or Product Y be dropped? Why?

c. Product X can be enhanced by incurring an additional $25,000 in fixed production costs. The company would not increase the product’s selling price, but the enhancement should result in increased unit sales. If increased by $80,000, should the product be enhanced?

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