Question

Music Teachers, Inc., is an educational association for music teachers that has 20,100 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	$	3,368,600
Expenses:
Salaries		966,000
Personnel costs		241,500
Occupancy costs		226,000
Reimbursement of member costs to local chapters		520,000
Other membership services		590,000
Printing and paper		280,000
Postage and shipping		159,000
Instructors’ fees		75,000
General and administrative		38,000
Total expenses		3,095,500
Excess of revenues over expenses	$	273,100

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 20,100 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 2,800 one-year subscriptions to Teachers’ Forum were also sold last year to nonmembers and libraries at $32 per subscription. In addition to subscriptions, the journal generated $119,000 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 28,800 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 2,600 students. A total of 1,880 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	$	222,000		3,000
Magazine Subscriptions		160,000		1,000
Books and Reports		302,000		1,000
Continuing Education		182,000		2,000
Corporate staff		100,000		3,000
Total	$	966,000		10,000

Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $226,000 in occupancy costs includes $59,000 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.

Answer 1

There is an error with the problem which needs to be fixed. Please talk to your professor for the same. Error lies
in printing and paper expenses which needs to be corrected. However, I am giving the solution for your
guidance and understanding, on the basis of which you will be able to solve the question.
Segmented income statement
	Association	Division
	Total	Membership	Magazine subscriptions	Books & Reports	Continuing education
Sales
Membership Fees	2010000	1608000	402000
Non-Member Journal subscription	89600		89600
Advertising	119000		119000
Reports & Texts	720000			720000
Continuing Education courses	430000				430000
Total Revenue	3368600	1608000	610600	720000	430000
Expenses traceble to segments
Salaries	866000	222000	160000	302000	182000
personnel costs	216500	55500	40000	75500	45500
occupancy costs	170333	55667	18556	59000	37111
Reimbursement of member's cost to local chapter	520000	520000
Other membership services	590000	590000
Printing and paper	280000		206100	115200	-41300
Postage and shipping	149200		91600	57600
Instructor's fees	75000				75000
Total traceble expenses	2867033	1443167	516256	609300	298311
Common Expenses not traceble to divisions
Salaries-corporate staff	100000
Personnel costs	25000
Occupnacy costs	55667
Postage & Shipping	9800
General administration	38000
Total common costs	228467
Total costs	3095500
Excess of Revenue over expenses	273100	164833	94344	110700	131689