Elimination of Unprofitable Segment Decision
URL Services has two divisions: Basic WebPages and Custom WebPages. Ricky vega, Custom's manager, wants to find out why Custom is not profitable. He has prepared reports that follow.
URL Services
Segmented Income Statement
For the Year Ended December 31
|
Service revenue
|
Basic
Webpages
11,000 units)
$200,000
|
Custom Webpages (200 units) $150,000
|
Total
Company
$350,000
|
|
Less variable costs:
|
|
|
|
|
Direct professional labor: design
|
$ 32,000
|
S 80.000
|
5112,000
|
|
Direct professional labor: install
|
30,000
|
4,000
|
34,000
|
|
Direct professional labor: maintain
|
15,000
|
36,000
|
51,000
|
|
Total variable costs
|
S 77.000
|
5120.000
|
$197,000
|
|
Contribution margin
|
5123,000
|
$ 30,000
|
$153,000
|
|
Less direct fixed costs:
|
|
|
|
|
Depreciation on computer equipment
|
S 6.000
|
$ 12,000
|
S 18,000
|
|
Depreciation on servers
|
10,000
|
20,000
|
30,000
|
|
Total direct fixed costs
|
i- 16,000
|
S 32,000
|
5 48,000
|
|
Segment margin
|
5107.000
|
$ (2,000)
|
5105.000
|
|
Less common fixed costs:
|
|
|
|
|
Building rent
|
|
|
24,000
|
|
Supplies
|
|
|
1,000
|
|
Insurance
|
|
|
3,000
|
|
Telephone
|
|
|
1.500
|
|
Website rental
|
|
|
500
|
|
Total common fixed costs
|
|
|
30,000
|
|
Operating income
|
|
|
75,000
|
Sales Mix Decision
Common thenn‘al Company's management is evaluating its product mix in attempt to maximize profits. For the past two years, Common has produced - an was and all have large markets in which to expand market share. Common's controller has gathered data from current operations and wants you to analyze than for him. Sales and operating data are as follows
|
|
Product A1
|
Product B7
|
Product CS
|
Product b9
|
|
Variable production costs
|
$71,000
|
$91,000
|
$91,920
|
$97,440
|
|
Variable Selling costs
|
510,200
|
$5,400
|
$12,480
|
$30,160
|
|
Fixed production costs
|
$20,400
|
$21,600
|
S29,120
|
518,480
|
|
Fixed administrative costs
|
53400
|
55.400
|
$6,24Q
|
310,080
|
|
Total sales
|
$122,000
|
$136,000
|
$156,400
|
$161,200
|
|
Units produced and sold
|
85,000
|
45,000
|
26.000
|
14,000
|
|
Machine hours used'
|
17,000
|
18,000
|
20,800
|
16.800
|
'Common's scarce resource, machine hours, is being used to full capacity. REQUIRED
1. Compute the machine hours needed to produce one unit of each product.
2. Determine the contribution margin per machine hour for each product.
3. Which product kiwis) should be targeted tbr market share expansion?