Nancy Henderson has just been appointed manager of Palmroy’s glass products division
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Question 1:
Nancy Henderson has just been appointed manager of Palmroy’s glass products division. She has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated, and Nancy will be reassigned as an assistant divisional manager in another division. The divisional income statement for the most recent year is given below:
Sales $5,350,000
Less variable expenses 4,750,000
Contribution margin 600,000
Less direct fixed expenses 750,000
Segment margin (150,000)
Less common fixed expenses (allocated) 200,000
Divisional profit (loss) $(350,000)
Upon arriving at the division, Nancy requested the following data on the division’s three products:
| Product A | Product B | Product C |
Sales (units) Unit selling price Unit variable cost Direct fixed costs | 10,000 $150 $100 $100,000 | 20,000 $140 $110 $500,000 | 15,000 $70 $103.33 $150,000 |
She also gathered data on a proposed new product (Product D). If this product is added, it would displace one of the current products. The quantity that could be produced and sold would equal the quantity sold of the product it displaces. Because of the specialized production equipment, it is not possible for the new product to displace part of the production of a second product. The information on Product D is as follows:
Unit selling price $70
Unit variable cost $30
Direct fixed cost $640,000
Required:
Prepare a segmented income statement (in good form) for Palmroy’s current production. (Note: Be sure to include a column for the firm.)
Determine the products that Nancy should produce for the coming year. (To make good use of the equipment, they want to produce three products.) Prepare a segmented income statement that proves your combination is the best for the division.
10 years ago
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