Problem 6-28 Segment Reporting; Activity-Based Cost Assignment [LO6-4] Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale-a cookbook, a travel guide, and a handy speller. Each book sells for $16. The publishing company's most recent monthly income statement is shown below 5 points Product line Total Travel Handy Guide Speller Company Cookbook eBook Sales Expenses: $ 340,000 $111,000162,000 $67,000 Print Printing costs Advertising General sales Salaries Equipment depreciation Sales commissions General administration Warehouse rent Depreciation-office facilities 64,300 10,700 16,000 4,200 4,020 10,300 4,700 3,200 6,700 15,300 15,300 2,680 2.300 143,800 53,800 $ 29,600 (1,800) 18,200 13,200 115,000 40,000 35,000 14,800 6,660 30,000 15,000 3,200 11,100 15,300 4,440 6,9002.300 310,400 112,800 References 20,400 9,720 9,600 34,000 45,900 13,600 3,200 16,200 6,480 2,300 Total expenses Net operating income (loss) The following additional information is available: a. Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the income statement above. Sales commissions are 10% of sales b. The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the 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 contains 54,400 square feet of space, of which 9,800 square feet is used by the cookbook line, 26,600 square feet by the travel guide line, and 18,000 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 depreciation of office facilities 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., is anxious to improve the publishing company's 4% return on sales. Required: 1. 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 2. Based on the segmented income statements given in the problem, management plans to eliminate the cookbook because it is noft returning a profit, and to focus all available resources on promoting the travel guide. However, based on the new contribution format segmented income statement that you prepared a. Do you agree with 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 available resources on promoting the travel guide? Travel Guide Handy Speller Total Cookbook Company Company Variable expenses: Total variable expenses Traceable fixed expenses Total traceable fixed expenses Common fixed expenses Total common fixed expenses Req 1 Req 2A Req 2 B1 Req 2 B2 Based on the segmented income statements given in the problem, management plans to eliminate the cookbook because it is not returning a profit, and to focus all available resources on promoting the travel guide. However, based on the new contribution format segmented income statement that you prepared Do you agree with management's plan to eliminate the cookbook? Show less Yes ONo K Reg1 Reg 2 B1> Req 1 Req 2AReq 2 B1Req 2 B2 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 1 Req 2AReq 2 B1Req 2 B2 Based on the statement you have prepared, do you agree with the decision to focus all available resources on promoting the travel guide? OYes ONo