1. Not doing one of the following tasks has a big effect on the financial statements. What effect does not doing this have on the balance sheet?

a. Production planning and policies of management will not be accurate.

b. Inefficiencies will not be eliminated and so corrective measures will not be taken.

c. Effective cost reporting system is impossible to implement without updating.

d. Lack of proper standard may lead to targets which are not achievable.

e.It may discourage employees and other staff members.

2. Sports, Inc., Spring Branch Segmented Income Statement For the Year Ended December 31 (Amounts in Thousands) Segment Profitability Decision

Sports, Inc., is a nationwide distributor of sporting equipment. The corporate president, Wesley Coldwell, is dissatisfied with corporate operating results,

particularly those of the Spring Branch, and has asked the controller for more information. The controller prepared the following segmented income statement

(in thousands of dollars) for the Spring Branch:
Football Baseball Basketball Spring Line Line Line Branch

Sales $3,500 $2,500 $2,059 $8,059

Less variable costs 2,900 2,395 1,800 7,095

Contribution margin $ 600 $ 105 $ 259 $ 964

Less direct fixed costs 300 150 159 609

Segment margin $ 300 ($ 45) $ 100 $ 355

Less common fixed costs 450

Operating income (loss) ($ 95)

Coldwell is considering adding a new product line, Kite Surfing. The controller estimates that adding this line to the Spring Branch will increase sales by

$300,000, variable costs by $150,000, and direct fixed costs by $20,000. The new product line will have no effect on common fixed costs.

Required

a. How will operating income be affected if the Baseball line is dropped?

b. How will operating income be affected if the Baseball line is kept and a Kite surfing line is added?

Answer rating: 100% (QA)

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