a) Using an excel sheet that shows the relevant formulas; Prepare a new contribution format segmented income statement for the year. Adjust the allocation of equipment depreciation and warehouse rent as indicated by the additional information provided.

b) After preparing the income statement (based on requirement a), management has decided to (1) eliminate the wheat cereal because it is not returning a profit, and (2) to focus all available resources on promoting the flour:

1. Based on the statement you have prepared; do you agree with the decision to eliminate the wheat cereal? Explain.

2. Based on the statement you have prepared; do you agree with the decision to focus all available resources on promoting the flour? Assume that an ample market is available for all two products.

c) Why are not common costs allocated to segments under the contribution approach?

Doha Food Company produces two products that it offers for sale: (i) wheat cereal, (ii) flour. Each product sells for $11 per package. Materials costs are $3.00, $4.20 per bag respectively. Sales commissions are 10% of sales for any product; while all other costs are fixed costs. The income statement for the year as follows: Info. Sales Costs: Direct Materials Sales Commission Advertising Salaries Depreciation on Equipment Warehouse Rent General Administration Total Costs Net Operating Income (loss) Total Wheat Cereal $200000 $300000 ? ? ? ? ? 60000 20000 48000 34000 126000 30000 60000 21000 10000 15000 ? ? ? ? 5000 30000 ? 6000 30000 ? ? ? ? Flour Additional Information: a. The same equipment is used to package all two products. In the above income statement, depreciation on equipment has been allocated on the basis of sales dollars. Its usage indicates that it is used 50% 50% respectively on the two products. b. All two 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 size of the warehouse is 22000 square feet, of which 8000 and 14000 square feet are used respectively on the two products. Doha Food Company paid $0.50 per square foot / yearly rent. c. The general administration costs relate to the administration of the company as a whole (common costs). In the above income statement, these costs have been divided equally among the two product lines. d. All other costs are traceable to the product lines