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ACC - Vega Foods, Inc.,




Question;Vega Foods, Inc., has recently purchased a small mill that it intends to operate as one of its subsidiaries. The newly acquired mill has three products that it offers for sale?wheat cereal, pancake mix, and flour. Each product sells for $10 per package. Materials, labor, and other variable production costs are $4.70 per bag of wheat cereal, $5.90 per bag of pancake mix, and $3.50 per bag of flour. Sales commissions are 10% of sales for any product. All other costs are fixed.The mill?s income statement for the most recent month is given below:Product LineTotalCompany WheatCereal PancakeMix FlourSales $ 1,110,000 $ 370,000 $ 470,000 $ 270,000Expenses:Materials, labor, and other 545,700 173,900 277,300 94,500Sales commissions 111,000 37,000 47,000 27,000Advertising 148,570 71,000 49,000 28,570Salaries 107,300 49,300 21,000 37,000Equipment depreciation 55,500 18,500 23,500 13,500Warehouse rent 22,200 7,400 9,400 5,400General administration 72,000 24,000 24,000 24,000Total expenses 1,062,270 381,100 451,200 229,970Net operating income (loss) $ 47,730 $ (11,100) $ 18,800 $ 40,030The following additional information is available about the company:a. The same equipment is used to mill and package all three products. In the above income statement, equipment depreciation has been allocated on the basis of sales dollars. An analysis of equipment usage indicates that it is used 40% of the time to make wheat cereal, 50% of the time to make pancake mix, and 10% of the time to make flour.b. All three products are stored in the same warehouse. In the above income statement, the warehouse rent has been allocated on the basis of sales dollars. The warehouse contains 44,400 square feet of space, of which 8,000 square feet are used for wheat cereal, 14,000 square feet are used for pancake mix, and 22,400 square feet are used for flour. The warehouse space costs the company $0.50 per square foot per month to rent.c. The general administration costs relate to the administration of the company as a whole. In the above income statement, these costs have been divided equally among the three product lines.d. All other costs are traceable to the product lines.Vega Foods? management is anxious to improve the mill?s 4.30% margin on sales.Required:1. Prepare a new contribution format segmented income statement for the month. Adjust the allocation of equipment depreciation and warehouse rent as indicated by the additional information provided. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your final answers to the nearest dollar amount.)TotalCompany WheatCereal PancakeMix Flour$ $ $ $Variable expenses:Total variable expensesTraceable fixed expenses:Total traceable fixed expenses$ $ $ $Common fixed expenses:$2. After seeing the income statement in the main body of the problem, management has decided to eliminate the wheat cereal because it is not returning a profit, and to focus all available resources on promoting the pancake mix.Based on the statement you have prepared, do you agree with the decision to eliminate the wheat cereal?


Paper#39083 | Written in 18-Jul-2015

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