Question

Alard Company produces blenders and coffee makers. During the past year, the company produced and sold 65,000 blenders and 75,000 coffee makers. Fixed costs for Alard totaled $340,000, of which $184,000 can be avoided if the blenders are not produced and $142,500 can be avoided if the coffee makers are not produced. Revenue and variable cost information follows:

	Blenders	Coffee Makers
Selling price per appliance	$24	$29
Variable expenses per appliance	18	27

Required:

1. Prepare segmented income statements. Separate direct and common fixed costs. Enter all amounts as positive numbers.

Alard Company
Segmented Income Statement
	Blenders	Coffee Makers	Total
	$	$	$
	$	$	$
	$	$	$
			$

2. What would the effect be on Alard’s profit if the coffee maker line is dropped? The blender line?

If the coffee maker line is dropped, profits will   by $, the segment margin. If the blender line is dropped, profits will   by $.

3. What would the effect be on firm profits if an additional 10,000 blenders could be produced (using existing capacity) and sold for $21.50 on a special-order basis? Existing sales would be unaffected by the special order. Enter all amounts as positive numbers.

Alard Company
Segmented Income Statement
	Blenders	Coffee Makers	Total
	$	$	$
Contribution margin	$	$	$
Segment margin	$	$	$
			$

Answer 1

Part-1
Alard Company
Segmented Income Statement
	Blenders	Coffee Makers	Total
Unit	65000	75000
Sales	$1,560,000	$2,175,000	$3,735,000
Less: Variable cost	$1,170,000	$2,025,000	$3,195,000
Contribution margin	$390,000	$150,000	$540,000
Less; Direct Fixed Cost	$184,000	$142,500	$326,500
Segment margin	$206,000	$7,500	$213,500
Less: Common Fixed Cost			$13,500
Net Income			$200,000

Part-2: If Coffee Maker Line is dropped
Alard Company
Segmented Income Statement
	Blender
Unit	65000
Sales	$1,560,000
Less: Variabel cost	$1,170,000
Contribution margin	$390,000
Less; Direct Fixed Cost	$184,000
Segment margin	$206,000
Less: Common Fixed Cost	$13,500
Net Income	$192,500
Part-2: If Blender Line is dropped
Alard Company
Segmented Income Statement
	Coffemaker
Unit	75000
Sales	$2,175,000
Less: Variabel cost	$2,025,000
Contribution margin	$150,000
Less; Direct Fixed Cost	$142,500
Segment margin	$7,500
Less: Common Fixed Cost	$13,500
Net Income	-$6,000

Part-3
Alard Company
Segmented Income Statement
	Blenders	Coffee Makers	Total
Unit	75000	75000
Sales	$2,015,000	$2,175,000	$4,190,000
Less: Variabel cost	$1,530,000	$2,025,000	$3,555,000
Contribution margin	$485,000	$150,000	$635,000
Less; Direct Fixed Cost	$184,000	$142,500	$326,500
Segment margin	$301,000	$7,500	$308,500
Less: Common Fixed Cost			$13,500
Net Income			$295,000