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Diversified Products, Inc., has recently acquired a small publishing company that offers three books for sale—a cookbook, a travel guide, and a handy speller. Each book sells for $10. The publishing company's most recent monthly income statement is given below:

| Product Line | Total | Cookbook | Travel Guide | Handy Speller |
|---------------------|---------|----------|--------------|---------------|
| **Sales** | $335,000| $104,000 | $164,000 | $67,000 |
| **Expenses** | | | | |
| Printing costs | $109,000| $34,000 | $63,700 | $11,300 |
| Advertising | $43,000 | $14,200 | $23,000 | $5,800 |
| General sales | $20,100 | $6,240 | $9,840 | $4,020 |
| Salaries | $40,000 | $25,000 | $9,700 | $5,300 |
| Equipment depreciation | $7,800 | $2,600 | $2,600 | $2,600 |
| Sales commissions | $33,500 | $10,400 | $16,400 | $6,700 |
| General administration | $44,100 | $14,700 | $14,700 | $14,700 |
| Warehouse rent | $13,400 | $4,160 | $6,560 | $2,680 |
| Depreciation-office facilities | $5,100 | $1,700 | $1,700 | $1,700 |
| **Total expenses** | $316,000| $113,000 | $148,200 | $54,800 |
| **Net operating income (loss)** | $19,000 | ($9,000) | $15,800 | $12,200 |

Note: Negative values in net operating income indicate a loss.

Answer :

Diversified Products, Inc. acquired a small publishing company and experienced a net operating loss of $12,200 for the month, despite generating total sales of $335,000 from their three books.

Despite the company's significant sales revenue of $335,000, Diversified Products, Inc. incurred a net operating loss of $12,200 for the month. The income statement reveals that the publishing company's expenses exceeded its total sales, resulting in a negative operating income.

Examining the expense breakdown, we can observe that printing costs accounted for $109,000, advertising expenses amounted to $43,000, and salaries reached $40,000. These three categories alone sum up to $192,000, which is higher than the company's total sales revenue. In addition, other expenses such as equipment depreciation, sales commissions, and general administration further contributed to the overall expenses.

It is important to note that the company's specific book sales are not directly mentioned in the income statement, but rather presented as product lines. However, by comparing the sales figures provided for the cookbook, travel guide, and handy speller ($104,000, $164,000, and $67,000 respectively) with the expenses allocated to each product line, we can infer that the travel guide generated the highest sales revenue, followed by the cookbook and then the handy speller.

This outcome emphasizes the significance of managing and controlling expenses effectively, especially when operating in a competitive market. It indicates that despite the promising sales figures, the publishing company incurred substantial costs that resulted in a net operating loss for the month.

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