Question

Music Teachers, Inc., is an educational association for music teachers that has 19,900 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	$	3,308,000
Expenses:
Salaries		962,000
Personnel costs		240,500
Occupancy costs		233,000
Reimbursement of member costs to local chapters		580,000
Other membership services		530,000
Printing and paper		322,000
Postage and shipping		207,000
Instructors’ fees		79,000
General and administrative		33,000
Total expenses		3,186,500
Excess of revenues over expenses	$	121,500

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 19,900 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 2,500 one-year subscriptions to Teachers’ Forum were also sold last year to nonmembers and libraries at $40 per subscription. In addition to subscriptions, the journal generated $113,000 in advertising revenues.

c. The costs to produce the Teachers’ Forum magazine included $8 per subscription for printing and paper and $4 per subscription for postage and shipping.

d. A total of 28,200 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 2,400 students. A total of 1,760 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	$	223,000		3,000
Magazine Subscriptions		152,000		1,000
Books and Reports		306,000		1,000
Continuing Education		183,000		2,000
Corporate staff		98,000		3,000
Total	$	962,000		10,000

Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $233,000 in occupancy costs includes $55,000 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

Music Teachers Inc.
Segmented Income Statement
		Division
Details	Association	Membership	Magazine	Books &	Continuing
	Total		subscriptions	Reports	Education
Sales:
Membership dues	1990000	1592000	398000
Non - member journal subscriptions	100000		100000
Reports and texts	705000			705000
Continuing education	400000				400000
Advertising	113000		113000
Total Revenues	3308000	1592000	611000	705000	400000
Expenses traceable to segments:
Salaries	864000	223000	152000	306000	183000
Personnel costs (25% of salaries)	216000	55750	38000	76500	45750
Occupancy costs	179300	53700	17900	71900	35800
Printing paper	322000		178400	112800	30800
Postage and shipping	145600		89200	56400
Instructors fee	79000				79000
Reimbursement of mebmer costs	580000	580000
Other membershipservices	530000	530000
Total traceable expenses	2915900	1442450	475500	623600	374350
Segementwise excess of revenues over expenses	392100	149550	135500	81400	25650
Common expenses not traceable to dividions
Salaries	98000
Personnel costs (25% of salaries)	24500
Occupancy costs	53700
Postage and shipping	61400
General andadministrative expenses	33000
Total common expenses	270600
Total excess of revenues over expenses	121500
Workings:
Revenues:
Membership	19900
Membership dues per year	100
Share of Magazine subscription from this	20
Membership fee only	80
Total membership fee received	1592000
Total magazine subscription from mebmers	398000
Non member subscription for magazine	2500
Non member subscripition fee	40
Total non member subscription for magazine	100000
Total subscription for magazine	498000
Number of technical reports and professional texts sold	28200
Sale price per report/ text	25
Total revenue from technical reports and texts	705000
Continuing education
One-day course fee	75
Number of students that attended one-day course	2400
One-day course fee collected	180000
Two-day course fee	125
Number of students that attended two-day course	1760
Two-day course fee collected	220000
Total revenue of continuing education segment	400000
Occupancy costs
	Total	Membership	Magazine	Books &	Continuing	Corporate
			subscriptions	Reports	Education	Staff
Space occupied	10000	3000	1000	1000	2000	3000
Occupancy Costs	233000
Rent of warehouse for books and reports div.	54000			54000
To be allocated based on the space occupied	179000	53700	17900	17900	35800	53700
total occupancy costs		53700	17900	71900	35800	53700
Printing and paper costs	322000
Teacher's forum subscription	22300
Cost of printing per magazine	8
Total costs of printing for teachers' forum	178400
Techincal reports and texts	28200
Cost of printing per reort	4
Total cost of printing for reports and texts	112800
Printing and paper for continuing education	30800
Postage and shipping	207000
Teacher's forum subscription	22300
Cost of postage and shipping per magazine	4
Total costs of postage and shipping for teachers' forum	89200
Techincal reports and texts	28200
Cost of postage and shippingper reort	2
Total cost of postage and shipping for reports and texts	56400
Balance postage and shipping to corporate expenses	61400