Question: A commission of 10 percent of sales would be paid to independent jobbers who sell to the shops. In addition, an extra packing expense of $0.50 per unit would be incurred because the shops require fewer bottles per carton.
a. The sales to small drugstores and supermarkets will remain the same.
b. The fixed overhead and selling and administrative expenses would remain unchanged and are treated as common costs.
Required: 1. Calculate the cost of Sugar smooth's ending inventory at the end of the first year under absorption costing.
2. Calculate the cost of Sugar smooth's ending inventory at the end of the first year under variable costing. What is operating income for the first year using variable costing?
3. Prepare a segmented variable-costing income statement for next year. The segments correspond to customer groups: drugstores and supermarkets, discount stores, and beauty shops.
4. Conceptual Connection: Are all three customer groups profitable? Should Sugar smooth expand its marketing base?