The segmented income statement for XYZ Company for the yearended December 31, 2016, follows: XYZ COMPANY Segmented IncomeStatement For the Year Ended December 31, 2016
Total Company Product A Product B Product C
Sales $ 610,000 $ 305,000 Â Â $ 118,000 $ 187,000
Vari. expenses 273,000 146,000 53,000 74,000
Cont. margin $ 337,000 $ 159,000 $ 65,000 $ 113,000
Fixed expenses 283,000 164,000 49,000 70,000
Oper. income $ 54,000 $ (5,000 ) $ 16,000 $ 43,000
The company is concerned about the performance of product A, andyou have been asked to analyze the situation and recommend to thepresident whether to continue or discontinue the product. Duringyour investigation, you discover that certain fixed expenses aretraceable directly to each product line as indicated here:
Total Company Product A Product B Product C
Direct fixed expenses $102,000 $75,000 $10,000 $17,000
The remaining fixed expenses are considered to be corporate-wideexpenses that have been allocated to each product line based onsales revenue.
Required: a. What will be the effect of the decision todiscontinue product A on operating income?
b. Assume that product A is discontinued. Prepare a segmentedincome statement for the remaining products. Allocatecorporate-wide fixed expenses as described. (Round intermediatecalculations to 2 decimal places.)
c. Starting with the segmented income statement, use theinformation you discovered during your investigation to present amore appropriately designed segmented income statement.
