Case 6-30 (Algo) Service Organization; Segment Reporting [LO6-4] Music Teachers, Incorporated, is an educational associa

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Case 6-30 (Algo) Service Organization; Segment Reporting
[LO6-4]
Music Teachers, Incorporated, is an educational association for
music teachers that has 20,500 members. The association operates
from a central headquarters but has local membership chapters
throughout the United States. Monthly meetings are held by the
local chapters to discuss recent developments on topics of interest
to music teachers. The association’s magazine, Teachers’
Forum, is issued monthly with features about recent
developments in the field. The association publishes books and
reports and also sponsors professional courses that qualify for
continuing professional education credit. The association’s
statement of revenues and expenses for the current year is
presented below.
The board of directors of Music Teachers, Incorporated, has
requested that a segmented income statement be prepared showing the
contribution of each segment to the association. The association
has four segments: Membership Division, Magazine Subscriptions
Division, Books and Reports Division, and Continuing Education
Division. Mike Doyle has been assigned responsibility for preparing
the segmented income statement, and he has gathered the following
data:
a. The 20,500 members of the association pay dues of $100 per
year, of which $20 covers a one-year subscription to
the Teachers’ Forum. Other benefits include
membership in the association and chapter affiliation. The portion
of the dues covering the magazine subscription ($20) should be
assigned to the Magazine Subscriptions Division.
b. A total of 3,900 one-year subscriptions to Teachers’
Forum were also sold last year to nonmembers and
libraries at $38 per subscription. In addition to subscriptions,
the journal generated $107,000 in advertising revenues.
c. The costs to produce the Teachers’
Forum magazine included $8 per subscription for printing
and paper and $4 per subscription for postage and shipping.
d. A total of 28,700 technical reports and professional texts
were sold by the Books and Reports Division at an average selling
price per unit of $25. Average costs per publication were $4 for
printing and paper and $2 for postage and shipping.
e. The association offers a variety of continuing education
courses to both members and nonmembers. The one-day courses had a
tuition cost of $75 each and were attended by 2,500 students. A
total of 1,840 students took two-day courses at a tuition cost of
$125 for each student. Outside instructors were paid to teach some
courses.
f. Salary costs and space occupied by division follow:
Personnel costs are 25% of salaries in the separate divisions as
well as for the corporate staff. The $240,000 in occupancy
costs (which can be allocated to segments based on their
square feet occupied) includes $52,000 in rental cost for a
warehouse used by the Books and Reports Division for storage
purposes. Assume that this cost could be avoided if the division
were eliminated.
g. Printing and paper costs other than for magazine
subscriptions and for books and reports relate to the Continuing
Education Division.
h. General and administrative expenses include costs relating to
overall administration of the association as a whole. The company’s
corporate staff does some mailing of materials for general
administrative purposes.
The expenses that can be traced or assigned to the corporate
staff, as well as any other expenses that are not traceable to the
segments, will be treated as common costs. It is not necessary to
distinguish between variable and fixed costs.
Required:
1. Prepare a segmented income statement for Music Teachers,
Incorporated. This statement should show the segment margin for
each division as well as results for the association as a
whole.