Knitline Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.

A sales commission of 5% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $20,000 for the sweater line and $50,000 for the jacket line. Common fixed overhead for the factory was estimated to be $45,000. Common selling and administrative expense was estimated to be $15,000.
Required:
1. Prepare a segmented income statement for Knitline for the coming year, using variable costing.
2. Suppose that next year, all revenues and costs are expected to remain the same except for direct fixed overhead expense, which will go up by $10,000 for one of the product lines due to costs related to new equipment. Does it matter which line (sweaters or jackets) requires the new equipment? Why?

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Sweaters Sales Variable cost of goods sold Direct fixed overhead $210,000 145,000 25,000 Jackets $450,000 196,000 47,000