Question

Music Teachers, Inc., is an educational association for music teachers that has 19,800 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 $ 3,318,900 Expenses: Salaries 981,000 Personnel costs 245,250 Occupancy costs 213,000 Reimbursement of member costs to local chapters 600,000 Other membership services 590,000 Printing and paper 325,000 Postage and shipping 186,000 Instructors’ fees 72,000 General and administrative 38,000 Total expenses 3,250,250 Excess of revenues over expenses $ 68,650 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 19,800 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 $38 per subscription. In addition to subscriptions, the journal generated $120,000 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 28,000 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 1,860 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 159,000 1,000 Books and Reports 316,000 1,000 Continuing Education 187,000 2,000 Corporate staff 96,000 3,000 Total $ 981,000 10,000 Personnel costs are 25% of salaries in the separate divisions as well as for the corporate staff. The $213,000 in occupancy costs (which can be allocated to segments based on their square feet occupied) includes $57,000 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 Teacher Inc.
	Segmented Income statement
		Association	Division
		Total	Membership	Magazine Subscription	Books and Reports	Continuing Education
	Sales
	Membership Dues	1,980,000	1,584,000	396,000
	Non Member journal Subscription	106,400		106,400
	Advertising	120,000		120,000
	Reports and Texts	700,000			700,000
	Continuing Education Courses	412,500				412,500
	Total Revenues	3,318,900	1,584,000	622,400	700,000	412,500
	Expenses traceable to segments:
	Salaries	885,000	223,000	159,000	316,000	187,000
	Personnel costs	221,250	55,750	39,750	79,000	46,750
	Occupancy Costs	166,200	46,800	15,600	72,600	31,200
	Reimbursement of member cost to local chapters	600,000	600,000
	Other membership services	590,000	590,000
	Printing and paper	325,000		203,400	112,000	9,600
	Postage and Shipping	146,400		90,400	56,000
	Instructor's Fees	72,000				72,000
	Total traceable expense	3,005,850	1,515,550	508,150	635,600	346,550
	Division segment margin /(Loss)	313,050	68,450	114,250	64,400	65,950
	Common Expenses not traceable to division
	Salaries corporate staff	96,000
	Personnel costs	24,000
	Occupancy Costs	46,800
	Postage and Shipping	39,600
	General and administrative	38,000
	Total Common Expenses	244,400
	Excess of Revenues over expenses	68,650