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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

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.)

Jun 16 2020 View more View Less

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