CASE 6â30 Service Organization; Segment Reporting[LO6â4]
Music Teachers, Inc., is an educational association for musicteachers that has 20,000 members. The association operates from acentral headquarters but has local membership chapters throughoutthe United States. Monthly meetings are held by the local chaptersto discuss recent developments on topics of interest to musicteachers. The associationâs journal, Teachersâ Forum, is issuedmonthly with features about recent developments in the field. Theassociation publishes books and reports and also sponsorsprofessional courses that qualify for continuing professionaleducation credit. The associationâs statement of revenues andexpenses for the current year is presented below.
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The board of directors of Music Teachers, Inc., has requestedthat a segmented income statement be prepared showing thecontribution of each segment to the association. The associationhas four segments: Membership Division, Magazine SubscriptionsDivision, Books and Reports Division, and Continuing EducationDivision. Mike Doyle has been assigned responsibility for preparingthe segmented income statement, and he has gathered the followingdata prior to its preparation.
Membership dues are $100 per year, of which $20 is considered tocover a one-year subscription to the associationâs journal. Otherbenefits include membership in the association and chapteraffiliation. The portion of the dues covering the magazinesubscription ($20) should be assigned to the Magazine SubscriptionDivision.
One-year subscriptions to Teachersâ Forum were sold tononmembers and libraries at $30 per subscription. A total of 2,500of these subscriptions were sold last year. In addition tosubscriptions, the magazine generated $100,000 in advertisingrevenues. The costs per magazine subscription were $7 for printingand paper and $4 for postage and shipping.
A total of 28,000 technical reports and professional texts weresold by the Books and Reports Division at an average unit sellingprice of $25. Average costs per publication were $4 for printingand paper and $2 for postage and shipping.
The association offers a variety of continuing education coursesto both members and nonmembers. The one-day courses had a tuitioncost of $75 each and were attended by 2,400 students. A total of1,760 students took two-day courses at a tuition cost of $125 foreach student. Outside instructors were paid to teach somecourses.
Salary costs and space occupied by division follow:
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Personnel costs are 25% of salaries inthe separate divisions as well as for the corporate staff. The$280,000 in occupancy costs includes $50,000 in rental cost for awarehouse used by the Books and Reports Division for storagepurposes.
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Printing and paper costs other than for magazine subscriptionsand for books and reports relate to the Continuing EducationDivision.
General and administrative expenses include costs relating tooverall administration of the association as a whole. The companyâscorporate staff does some mailing of materials for generaladministrative purposes.
The expenses that can be traced or assigned to the corporatestaff, as well as any other expenses that are not traceable to thesegments, will be treated as common costs. It is not necessary todistinguish between variable and fixed costs.
Required:
Prepare a contribution format segmented income statement forMusic Teachers, Inc. This statement should show the segment marginfor each division as well as results for the association as awhole.
Give arguments for and against allocating all costs of theassociation to the four divisions.
Somewhat similar to a vignette in literature, this provides anopportunity to look at the application of Managerial Accounting ina diverse set of factual circumstances.
After completing the requirements for the case study, pleaseprovide a short narrative (two to four pages) and analysis of yourimpressions on how these principles and processes can be appliedproductively in settings that you encounter or expect to encounterin your career. Which aspects of the course do you believe you willbe able to apply most productively going forward? Which of thesetechniques are you regularly using in your current positions? Ifyou are using different applications, provide insight of the prosand cons in comparison to the reports and analysis above.
Schedules should be submitted in excel format and any analysisand write-ups should be in a Microsoft Word Document.
