Problem: The following data pertain to Brown Brother’s Company operations for July.
Total Product X Product Y
Number of units sold... 10,000 12,000
Selling price per unit... $20,000 $25.00
Variable cost per unit:
Production... $9 $10.00
Selling & administration... $3 $3.75
Fixed Costs:
Production.... $155,000
Selling & administrative... $20,000
Only $50,000 of the fixed production costs is traceable to the production of Product X and $75,000 is traceable to Product Y. All of the selling and administrative costs are common costs that cannot be traced to either product.
Q1. Prepare a segmented income statement for Brown Brother’s using the following form:
Brown Brother’s
Income Statement
For the month ended July 31
Q2. Should either Product X or Product Y be dropped? Why?
Q3. Product X can be enhanced by incurring an additional $25,000 in fixed production costs. The company would not increase the product’s selling price, but the enhancement should result in increased unit sales. If increased by $80,000, should the product be enhanced?