Adele Truff designs and manufactures a variety of personal products including wallets, purses, and key chains. Adele is proposing to begin manufacturing smart phone covers which sell for $25 each. Adele estimates that monthly sales volume will be 8,500 units. Variable product costs will be $15.50 per unit and fixed overhead will be $5.20 per unit. Half of the fixed overhead is directly traceable to the smart phone cover line. To promote the covers, Adele proposes a $1.25 per unit commission to the company's salespeople and a $7,500 per month advertising campaign. In compliance with corporate policy, the smart phone cover line will also be allocated $15,000 in fixed corporate support costs.
Required
| a. | Prepare a traditional monthly income statement for the smart phone cover line. |
| b. | Prepare a monthly income statement that highlights the proposed smart phone cover |
line's segment margin.
| c. | Which income statement would you recommend that Adele use when pitching the |
proposed line to company managers? Why would you recommend she use this statement?
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