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    American Association of Acupuncturists: allocating all costs

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    The American Association of Acupuncturists is a professional association for acupuncturists that has 10,000 members. The association operates from a central headquarters but has local chapters throughout North America. The association's monthly journal, American Acupuncture, features recent developments in the field. The association also publishes special reports and books, and it sponsors courses that qualify members for the continuing professional education credit required by state certification boards. The association's statement of revenues and expenses for the current year is presented below:

    American Association of Acupuncturists
    Statement of Revenues and Expenses
    For the Year Ended December 31
    Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 970,000
    Expenses:
    Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440,000
    Occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120,000
    Distributions to local chapters . . . . . . . . . . . . . . . . . . 210,000
    Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,000
    Mailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
    Continuing education instructors' fees . . . . . . . . . . . . 60,000
    General and administrative . . . . . . . . . . . . . . . . . . . . . 27,000
    Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 963,000
    Excess of revenues over expenses . . . . . . . . . . . . . . $ 7,000

    The board of directors of the association has requested that you construct a segmented income statement that shows the financial contribution of each of the association's four major programsâ?" membership service, journal, books and reports, and continuing education. The following data have been gathered to aid you:
    a. Membership dues are $ 60 per year, of which $ 15 covers a one- year subscription to the association's journal. The other $ 45 pays for general membership services.
    b. One- year subscriptions to American Acupuncture are sold to nonmembers and libraries at $ 20 per subscription. A total of 1,000 of these subscriptions were sold last year. In addition to subscriptions, the journal generated $ 50,000 in advertising revenues. The costs per journal subscription, for members as well as nonmembers, were $ 4 for printing and $ 1 for mailing.
    c. A variety of technical reports and professional books were sold for a total of $ 70,000 during the year. Printing costs for these materials totaled $ 25,000, and mailing costs totaled $ 8,000.
    d. The association offers a number of continuing education courses. The courses generated revenues of $ 230,000 last year.
    e. Salary costs and space occupied by each program and the central staff are as follows:
    Salaries Space Occupied (square feet)
    Membership services . . . . . . . . . . . . $ 170,000 3,000
    Journal . . . . . . . . . . . . . . . . . . . . . . . 60,000 1,000
    Books and reports . . . . . . . . . . . . . . 40,000 1,000
    Continuing education . . . . . . . . . . . . 50,000 2,000
    Central staff . . . . . . . . . . . . . . . . . . . 120,000 3,000
    Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 440,000 10,000

    f. The $ 120,000 in occupancy costs incurred last year includes $ 20,000 in rental cost for a portion of the warehouse used by the Membership Services program for storage purposes. The association has a flexible rental agreement that allows it to pay rent only on the warehouse space it uses.
    g. Printing costs other than for journal subscriptions and for books and reports related to Continuing Education.
    h. Distributions to local chapters are for general membership services.
    i. General and administrative expenses include costs relating to overall administration of the association as a whole. The association's central staff does some mailing of materials for general administrative purposes.
    j. The expenses that can be traced or assigned to the central staff, as well as any other expenses that are not traceable to the programs, will be treated as common costs. It is not necessary to distinguish between variable and fixed costs.

    Required:
    1. Prepare a contribution format segmented income statement for the American Association of Acupuncturists for last year. This statement should show the segment margin for each pro-gram as well as results for the association as a whole.
    2. Give arguments for and against allocating all costs of the association to the four programs. (CMA, adapted)

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    Solution Preview

    See segment margin income statement attached in Excel.

    Argument for and against allocating common costs.
     
    For allocating:
     
    The costs of the common staff and general/administrative expenses benefit all departments to some extent. If the staff and costs were not supporting the departments, they would have to go obtain these items and services for themselves at an incremental cost. So, some attempt should be made to reflect the ...

    Solution Summary

    See segment margin income statement attached in Excel. Your tutorial shows a segment margin income statement and gives you three pros and three cons of allocating common costs (240 words).

    $2.19

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