Problem 6-28 Segment Reporting; Activity-Based Cost Assignment [L06-4] Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale-a cookbook, a travel gulde, and a handy speller. Each book sells for $14. The publishing company's most recent monthly Income statement is shown below. Product line Travel Total Handy Guide Speller 328,8e8 98,808 $158,808 64,808 Company Cookbook Sales Expenses: Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions General administration Warehouse rent Depreciation-office facilities 186,888 31,888 48,888 13,988 5,888 37,08 22,8ee 2,388 9,888 43,288 14,488 3,928 1,488 381,388 184,688 63,488 11,688 4,688 3,848 5,688 2,388 6,488 14,488 14,488 21,5e8 9,488 9,488 2,388 15,888 19,288 6,988 32,8e8 6,328 1,488 144,888 12,888 4,288 1,488 52,788 $ 18,7e8 (6,68) 14,988 11,388 Total expenses Net operating income (loss) The folloWing additional Information is avallable a. Only printing costs and sales commisslons are varlable; all other costs are fixed. The printing costs (which Include materials, labor and varlable overhead) are traceable to the three product lines as shown In the Income statement above. Sales commisslons are 10% of sales. b. The same equipment is used to produce all three books, so the equlpment depreclation cost has been allocated equally among the three product lines. An analysis of the company's activities indicates that the equipment is used 35% of the time to produce cookbooks, 55% of the time to produce travel guides, and 10% of the time to produce handy spellers. C. The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost Is $3 per square foot per year. The warehouse contalns 51,200 square feet of space, of which 8,000 square feet is used by the cookbook line, 24,800 square feet by the travel guide line, and 18,400 square feet by the handy speller line d. The general sales cost above Includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars e. The general administration cost and depreclation of office facillties both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines. f. All other costs are traceable to the three product lines In the amounts shown on the Income statement above The management of Diversified Products, Inc., ls anxious to improve the publishing company's 4% return on sales. Requlred 1. Prepare a new contribution format segmented Income statement for the month. Adjust allocations of equipment depreclation and of warehouse rent as Indicated by the additional Information provided. 2 Based on the segmented Income statements glven In the problem, management plans to eliminate the cookbook because It Is not returning a profit, and to focus all avallable resources on promoting the travel guide. However, based on the new contribution format segmented Income statement that you prepared: a. Do you agree wlth management's plan to eliminate the cookbook? b-1. Compute the contribution margin ratio for each product. b-2. Based on the statement you have prepared, do you agree with the decision to focus all avallable resources on promoting the travel guide? Req 2A Req 1 Req 2 B1 Req 2 B2 Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation and of warehouse rent as indicated by the additional information provided TravelHandy Speller Total Company Cookbook Guide Variable expenses: Total variable expenses Traceable fixed expenses: Total traceable fixed expenses 0 S Common fixed expenses: Total common fixed expenses Req1 Req 2A > Complete this question by entering your answers in the tabs below. Req 1 Req 2 B1 Req 2 B2 Req 2A Compute the contribution margin ratio for each product. (Round your answers to the nearest whole percent.) Cookbook Travel Guide Handy Speller Contribution margin ratio Req 2A Req 2 B2>