Knitline Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.
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Sweaters
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Jackets
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Sales
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$ 210,000
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$ 450,000
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Variable cost of goods sold
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145,000
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196,000
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Direct fixed overhead
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25,000
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47,000
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A sales commission of 5% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $20,000 for the sweater line and $50,000 for the jacket line.
Common fixed overhead for the factory was estimated to be $45,000. Common selling and administrative expense was estimated to be $15,000.
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Required:
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1.
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Prepare a segmented income statement for Knitline for the coming year, using variable costing.
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2.
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Suppose that next year, all revenues and costs are expected to remain the same except for direct fixed overhead expense, which will go up by $10,000 for one of the product lines due to costs related to new equipment. Does it matter which line (sweaters or jackets) requires the new equipment? Why?
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Labels and Amount Descriptions
Refer to the list below for the exact wording of a label or an amount description within your income statement.
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Labels
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Add common fixed expenses
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Add direct fixed expenses
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Add variable expenses
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Less common fixed expenses
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Less direct fixed expenses
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Less variable expenses
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Amount Descriptions
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Common fixed overhead
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Common selling and administrative
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Contribution margin
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Direct fixed overhead
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Direct selling and administrative
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Operating loss
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Operating income
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Sales
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Segment margin
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Variable cost of goods sold
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Variable selling expenses
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Segmented Income Statement
Shaded cells have feedback.
1. Prepare a segmented income statement for Knitline for the coming year, using variable costing. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your income statement. If an amount is negative, first enter a minus sign (-).
