Question

Kiplinger Company has hired you to prepare a contribution format segmented income statement. The company has provided you with the following information relating to their two product lines to assist you with the project.

Product Line 1 Product Line 2 Units sales 2,000 5,000 Selling price $100 $90 Variable manufacturing costs $10 $60 Traceable fixed manufacturing costs $40,000 $20,000 Variable administrative costs $3 $12 Traceable fixed administrative costs $50,000 $12,000 Allocated corporate expenses $100,000 $50,000 After preparing the contribution format segmented income statement, write a sentence or two on what the company should do to improve net income, which product line should be dropped, if any. -- Font family -- -- Font size -- -- Format --HeadingSub Heading 1Sub Heading 2ParagraphFormatted Code -- Font family --Andale MonoArialArial BlackBook AntiquaComic Sans MSCourier NewGeorgiaHelveticaImpactSymbolTahomaTerminalTimes New RomanTrebuchet MSVerdanaWebdingsWingdings -- Font size --1 (8pt)2 (10pt)3 (12pt)4 (14pt)5 (18pt)6 (24pt)7 (36pt) Kiplinger Company has hired you to prepare a contribution format segmented income statement. The company has provided you with the following information relating to their two product lines to assist you with the project. Product Line 1 Product Line 2 Units sales 2,000 5,000 Selling price $100 $90 Variable manufacturing costs $10 $60 Traceable fixed manufacturing costs $40,000 $20,000 Variable administrative costs $3 $12 Traceable fixed administrative costs $50,000 $12,000 Allocated corporate expenses $100,000 $50,000

After preparing the contribution format segmented income statement, write a sentence or two on what the company should do to improve net income, which product line should be dropped, if any. -- Font family -- -- Font size -- -- Format --HeadingSub Heading 1Sub Heading 2ParagraphFormatted Code -- Font family --Andale MonoArialArial BlackBook AntiquaComic Sans MSCourier NewGeorgiaHelveticaImpactSymbolTahomaTerminalTimes New RomanTrebuchet MSVerdanaWebdingsWingdings -- Font size --1 (8pt)2 (10pt)3 (12pt)4 (14pt)5 (18pt)6 (24pt)7 (36pt) Kiplinger Company has hired you to prepare a contribution format segmented income statement. The company has provided you with the following information relating to their two product lines to assist you with the project. Product Line 1 Product Line 2 Units sales 2,000 5,000 Selling price $100 $90 Variable manufacturing costs $10 $60 Traceable fixed manufacturing costs $40,000 $20,000 Variable administrative costs $3 $12 Traceable fixed administrative costs $50,000 $12,000 Allocated corporate expenses $100,000 $50,000 After preparing the contribution format segmented income statement, write a sentence or two on what the company should do to improve net income, which product line should be dropped, if any. -- Font family -- -- Font size -- -- Format --HeadingSub Heading 1Sub Heading 2ParagraphFormatted Code -- Font family --Andale MonoArialArial BlackBook AntiquaComic Sans MSCourier NewGeorgiaHelveticaImpactSymbolTahomaTerminalTimes New RomanTrebuchet MSVerdanaWebdingsWingdings -- Font size --1 (8pt)2 (10pt)3 (12pt)4 (14pt)5 (18pt)6 (24pt)7 (36pt)

Answer 1

		Line 1	Line 2
A	Units Sales	2000	5000
	selling price per unit	$                100	$ 90
less	variable costs
	Manufacturing cost per unit	$                  10	$ 60
	Administration cost per unit	$ 3	$ 12
B	Contribution Margin per unit	$                  87	$ 18
	Total contribution margin (A*B)	$        174,000	$        90,000
Less	Fixed costs
	Fixed manufacturing costs	$ 40000	$ 20000
	Fixed administration costs	$ 50000	$ 12000
	Allocated corporate expenses	$ 100000	$ 50000
	Net income	$        (16,000)	$          8,000

as per the above data if the sales will be continued like that then the line 1 business should be dropped as line 1 net income is in negative where as line 2 net income is positive. To increase more profit more units of line 1 must be sold to earn the contribution which is more than the line 2 . As in the long run if fixed costs are covered contribution amount will be net income.