Home / Questions / Vega Foods Inc has recently purchased a small mill that it intends to operate as one of it...
Vega Foods, Inc., has
recently purchased a small mill that it intends to operate as one of its
subsidiaries. The newly acquired mill has three products that it offers for
sale—wheat cereal, pancake mix, and flour. Each product sells for $10 per
package. Materials, labor, and other variable production costs are $4.30 per
bag of wheat cereal, $5.50 per bag of pancake mix, and $3.10 per bag of
flour. Sales commissions are 10% of sales for any product. All other costs
are fixed.
The mill’s income
statement for the most recent month is given below:
Product Line
Total
Company
Wheat
Cereal
Pancake
Mix
Flour
Sales
$
990,000
$
330,000
$
430,000
$
230,000
Expenses:
Materials,
labor, and other
449,700
141,900
236,500
71,300
Sales
commissions
99,000
33,000
43,000
23,000
Advertising
139,380
60,900
52,200
26,280
Salaries
105,000
51,000
21,000
33,000
Equipment
depreciation
49,500
16,500
21,500
11,500
Warehouse
rent
19,800
6,600
8,600
4,600
General
administration
90,000
30,000
30,000
30,000
Total expenses
952,380
339,900
412,800
199,680
Net
operating income (loss)
$
37,620
$
(9,900)
$
17,200
$
30,320
The following
additional information is available about the company:
a.
The same equipment is
used to mill and package all three products. In the above income statement,
equipment depreciation has been allocated on the basis of sales dollars. An
analysis of equipment usage indicates that it is used 40% of the time to make
wheat cereal, 50% of the time to make pancake mix, and 10% of the time to
make flour.
b.
All three products are
stored in the same warehouse. In the above income statement, the warehouse
rent has been allocated on the basis of sales dollars. The warehouse contains
39,600 square feet of space, of which 8,000 square feet are used for wheat
cereal, 14,000 square feet are used for pancake mix, and 17,600 square feet
are used for flour. The warehouse space costs the company $0.50 per square
foot per month to rent.
c.
The general
administration costs relate to the administration of the company as a whole.
In the above income statement, these costs have been divided equally among
the three product lines.
d.
All other costs are
traceable to the product lines.
Vega Foods’ management
is anxious to improve the mill’s 3.80% margin on sales.
Required:
1.
Prepare a new
contribution format segmented income statement for the month. Adjust the
allocation of equipment depreciation and warehouse rent as indicated by the
additional information provided.(Input all amounts as positive values except
losses which should be indicated by a minus sign. Round your final
answers to the nearest dollar amount.)
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