Chiltina Inc. produces two types of fleeces—full-zip and half-zip—in a single factory. The following information was provided for the coming year.

A sales commission of 10% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $60,000 for the Full Zip line and $260,000 for the Half Zip line.

Common fixed overhead for the factory was estimated to be $80,500. Common selling and administrative expense was estimated to be $74,000.

Required:
1. Prepare a segmented income statement for Chiltina 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 $40,000 for one of the product lines due to costs related to new equipment. Does it matter which line (Full Zip or Half Zip) requires the new equipment? Why?

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Sales Variable cost of goods sold Direct fixed overhead Full-Zip Half-Zip $410,000 $1,400,000 210,000 544,500 70,000 220,000