ACC – Vega Foods, Inc.,

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 salewheat cereal, pancake mix, and flour.Each product sells for $10 per package. Materials, labor, and other variable production costs are $3.10per bag of wheat cereal, $4.30 per bag of pancake mix, and $1.90 per bag of flour. Sales commissionsare 10% of sales for any product. All other costs are fixed.The mills income statement for the most recent month is given below:Product LineWheaTotalt PancComp Cerea akeanylMixSale630,0$s00210,0$00Flour310,0$00219,30065,100133,30020,90063,00021,00031,00011,000145,62050,50070,00025,12081,60045,00021,60015,00031,50010,50015,5005,50012,6004,2006,2002,20060,0020,0020,0020,00$110,000Expenses:Materials,labor,andotherSalescommissionsAdvertisingSalariesEquipmentdepreciationWarehouserentGeneraladministration0000Totalexpenses613,620216,300297,60099,720Netoperatingincome(loss)$16,380$(6,300)$12,400$10,280The following additional information is available about the company:a. The same equipment is used to mill and package all three products. In the above income statement,equipment depreciation has been allocated on the basis of sales dollars. An analysis of equipmentusage indicates that it is used 30% of the time to make wheat cereal, 50% of the time to make pancakemix, and 20% of the time to make flour.b. All three products are stored in the same warehouse. In the above income statement, the warehouserent has been allocated on the basis of sales dollars. The warehouse contains 25,200 square feet ofspace, of which 8,000 square feet are used for wheat cereal, 14,000 square feet are used for pancakemix, and 3,200 square feet are used for flour. The warehouse space costs the company $0.50 persquare foot per month to rent.c. The general administration costs relate to the administration of the company as a whole. In the aboveincome statement, these costs have been divided equally among the three product lines.d. All other costs are traceable to the product lines.Vega Foods management is anxious to improve the mills 2.60% margin on sales.Required:1. Prepare a new contribution format segmented income statement for the month. Adjust the allocationof equipment depreciation and warehouse rent as indicated by the additional informationprovided. (Input all amounts as positive values except losses which should be indicated bya minus sign. Round your final answers to the nearest dollar amount.)TotalCompanyWheatCereal$PancakeMix$Flour$$Variable expenses:Total variable expensesTraceable fixed expenses:Total traceable fixedexpenses$$Common fixed expenses:$2. After seeing the income statement in the main body of the problem, management has decided toeliminate the wheat cereal because it is not returning a profit, and to focus all available resources onpromoting the pancake mix.Based on the statement you have prepared, do you agree with the decision to eliminate the wheatcereal?YesNo