Problem 8-37 Segmented Income Statements, Product-Line Analysis

Alard Company produces blenders and coffee makers. During the past year, the company pro- duced and sold 65,000 blenders and 75,000 coffee makers. Fixed costs for Alard totaled $340,000, of which $184,000 can be avoided if the blenders are not produced and $142,500 can be avoided if the coffee makers are not produced. Revenue and variable cost information follow:

Blenders      Coffee Makers

 

Variable expenses per appliance                   $18                      $27

Selling price per appliance                              24                        29

 

Required:

1.       Prepare segmented income statements. Separate direct and common fixed costs.

2.       What would the effect be on Alard’s profit if the coffee maker line is dropped? The blender line?

3.       What would the effect be on firm profits if an additional 10,000 blenders could be produced (using existing capacity) and sold for $21.50 on a special-order basis? Existing sales would be unaffected by the special order.