Taylor Tool Corporation produces and sells three different product lines: electric tools, pneumatic tools, and hand tools. Last year the company conducted an aggressive advertising campaign to boost sales of its products; however, this year's income was disappointing. The following absorption costing income statement was presented to management.

Management is concerned about the unexpected low level of profits and the effectiveness of the advertising campaign. To evaluate these concerns, management has requested a product-line income statement prepared on a contribution margin basis. Data related to last year's activities follow.
(a) Advertising expenditures for the year were:
Electric tools ...........................................................$200,000
Pneumatic tools ...................................................... 200,000
Hand tools ............................................................. 50,000
(b) Variable marketing expenses related to packing and shipping the products sold to customers were:
Electric tools ...........................................................$100,000
Pneumatic tools ...................................................... 100,000
Hand tools ............................................................. 50,000
(c) Analysis of manufacturing costs revealed the following:
ElectricPneumaticHand
ToolsToolsTools
Materials .......................................$400,000$350,000$150,000
Labor ........................................... 200,000 200,000 30,000
Variable overhead ............................ 100,000 50,000 20,000
Fixed overhead traceable to products......100,000100,00050,000
(d) Half the sales revenue came from sales of electric tools, one third from sales of pneumatic tools, and the balance from sales of hand tools.
(e) All other costs and expenses incurred during the period were common fixed costs.
Required:
Prepare a product-line income statement on a contribution margin basis.

Transcribed Image Text:

Sales Less cost of goods sold $3,000,000 1.950,000 $1,050,000 Gross profitaneere Less commercial expenses: Marketing Administration $800,000 150,000 950,000 S 100,000 Operating income....