MARY JANE A.

IBAÑEZ
ACC 041
Case Study 3 - Variable Costing System
1.

Product Line
Total Travel Handy
Cookbook
Company Guide Speller
Sales $300,000 $90,000 $150,000 $60,000
Variable Expenses
Printing costs 102,000 27,000 63,000 12,000
Sales commissions 30,000 9,000 15,000 6,000
Total variable cost $132,000 $36,000 $78,000 $18,000
Segment Contribution Margin $168,000 $54,000 $72,000 $42,000
Traceable Fixed Expenses
Advertising 36,000 13,500 19,500 3,000
Salaries 33,000 18,000 9,000 6,000
2,700
Equipment depreciation 9,000 ($9,600 x 4,500 1,800
0.30)
1,800
Warehouse rent 12,000 ($3 x 7,200 = 6,000 4,200
$21,600 / 12)
Total Traceable Fixed
$90,000 $36,000 $39,000 $15,000
Expenses
Segment Margin $78,000 $18,000 $33,000 $27,000
General fixed expense not
tracable to products
Depreciation - office facilities 3,000
General administration 42,000
General sales 18,000
Net operating income (loss) $15,000

2.
a. No, I do not agree with the decision. The segment margin will decrease by
$18,000 and there will be no change in the nontraceable fixed costs.
b.
Total
Cookbook Travel Guide Handy Speller
Company
Sales $300,000 $90,000 $150,000 $60,000
Variable
Expenses
Printing costs 102,000 27,000 63,000 12,000
Sales
30,000 9,000 15,000 6,000
commissions
Total variable
$132,000 $36,000 $78,000 $18,000
cost
Segment
Contribution $168,000 $54,000 $72,000 $42,000
Margin
Contribution 56% 60% 48% 70%
margin ratio

168,000/300,000 = 56% 54,000/90,000 = 60% 150,000/72,000 = 48%

60,000/42,000 = 70%

3. The marketing effort should be focussed on the handy speller as it has the
highest contribution margin ratio, which implies that any additional sales
revenue from this product will add the most to the operating income.

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