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 $3.00 per
bag of wheat cereal, $4.20 per bag of pancake mix, and $1.80 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:

Total Wheat Cereal Pancake Mix Flour

Company
Sales $600,000 $200,000 $300,000 $100,000
Expenses:
Material, labor and other 204,000 60,000 126,000 18,000
Sales Commissions 60000 20000 30000 10000
Advertising 123000 48000 60000 15000
Salaries 66000 34000 21000 11000
Equipment Depreciation 30000 10000 15000 5000
Warehouse rent 12,000 4,000 6,000 2,000
General Administration 90,000 30,000 30,000 30,000
Total Expense 585,000 206,000 288,000 91,000
Net Operating income (loss) $15,000 ($6,000) $12,000 $9,000
its subsidiaries.
e mix, and flour.
costs are $3.00 per
missions are 10%

Now, the information from the problem. We are told that the
Flour company wants to improve its 2.5% margin on sales.
$100,000 The same equipment is used for all 3 products, but is divided
up as follows:
18,000 40% for Wheat Cereal
10000 50% for Pancake Mix
15000 10% for Flour
11000
5000 Everything is stored in the same warehouse and rent has
2,000 been
8,000 allocated based
sqft for Wheat on SALES. There is 24,000 square feet
Cereal
30,000 14,000 sqft for Pancake Mix
91,000 2,000 sqft for Flour
$9,000 Cost of Warehouse: $0.50 per month for rent

General Administrative costs are for the company as a whole. Costs are
divided up among the three product lines

All other costs are traceable to a product line

s a whole. Costs are
Vega Foods, Inc., has recently purchased a small mill that it intends to operate as one of its subsidiaries. The ne
three products that it offers for sale—wheat cereal, pancake mix, and flour. Each product sells for $10 per pack
and other variable production costs are $3.00 per bag of wheat cereal, $4.20 per bag of pancake mix, and $1.80
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:

Total Company Wheat Cereal Pancake Mix Flour

Sales 600,000 200,000 300,000 100,000
Units Produced 60,000 20,000 30,000 10,000
Variable expenses:
Materials, labor
204,000 60,000 126,000 18,000
& other
Sales 60,000 20,000 30,000 10,000
Totalcommissions
variable 264,000    80,000  156,000    28,000
expenses
Contribution margin  336,000  120,000  144,000    72,000
Traceable fixed
expenses:
Advertising 123,000 48,000 60,000 15,000
Salaries 66,000 34,000 21,000 11,000
Equipment 30,000 12,000 15,000 3,000
depreciation*
Warehouse    12,000 4,000 7,000 1,000
rent**
Total traceable fixed 231,000 98,000 103,000 30,000
expenses
Product line segment
margin 105,000 22,000 41,000 42,000
Common fixed
expenses:
General    90,000
administration
Net operating income 15,000
ne of its subsidiaries. The newly acquired mill has
roduct sells for $10 per package. Materials, labor,
g of pancake mix, and $1.80 per bag of flour. Sales

EXPLANATION
Sales do not change. Variable Costs:
Units Produced = Sales/$10 sales price per unit Sales Commission:
The same equipment is used
up as follows:
Materials: Units produced x VC per unit. We know the numnber of un40% for Wheat Cereal
Commission: 10% of Sales 50% for Pancake Mix
10% for Flour
CM is Sales - Variable Costs Everything is stored in the s
been
8,000 allocated based
sqft for Wheat on SAL
Cereal
FIXED 14,000 sqft for Pancake Mix
FIXED 2,000 sqft for Flour
FIXED Cost of Warehouse: $0.50 per
Fixed, BUT allocated based on square footage at $0.50 per sqft
General Administrative cost
company as a whole.
Contribution Margin - Traceable Fixed Expenses
All other costs are traceable
 $3.00 $4.20 $1.80
mmission:
me equipment is used for 0.1
all 3 products, but is divided
llows:
Wheat Cereal 0.40
Pancake Mix 0.50
0.10
ing is stored in the same warehouse and rent has
ocated
ft based
for Wheat on SALES. There is8000
Cereal 24,000 square feet
qft for Pancake Mix 14000
ft for Flour 2000
Warehouse: $0.50 per month for rent 0.50

Administrative costs are allocated for the

y as a whole.

r costs are traceable to a product line