SMG AC 222 Lecture Notes - Lecture 6: Earnings Before Interest And Taxes, Contribution Margin, Fixed Cost

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28 Jul 2016

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Chapter 6 part ii: traceable and common fixed cost. Division (ex: phone division"s manager"s salary) (phone div) Variable expenses (variable cogs + other variable expenses) Good for decision making to know the impact of discontinuing a product or product line. To evaluate managerial performance: common mistakes in segmented income statement. Omission of costs (when use absorption costing system, product costs only include manufacturing costs. This will result in the omission of upstream costs r&d and product design, and downstream costs marketing, distribution, consumer services. So the product cost is undermined and the company will suffer a loss in the long run. ) The upstream stage of the production process involves searching for and extracting raw materials. The upstream part of the production process does not do anything with the material itself, such as processing the material. This part of the process simply finds and extracts the raw material.

Related Questions

EXERCISE 6-5 Companywide and Segment Break-Even Analysis (L06-5] Piedmont Company segments its business into two regions—North and South. The company pre- pared the contribution format segmented income statement shown below: Sales ......... Variable expenses ......... Contribution margin ........ Traceable fixed expenses ......... Segment margin ............. Common fixed expenses ..... Net operating income ............. Total Company $600,000 360,000 240,000 120,000 120,000 50,000 $ 70,000 North $400,000 280,000 120,000 60,000 $ 60,000 South $200,000 80,000 120,000 60,000 $ 60,000 Required: 1. Compute the companywide break-even point in dollar sales. 2. Compute the break-even point in dollar sales for the North region. 3. Compute the break-even point in dollar sales for the South region.

Piedmont Company segments its business into two regionsâNorthand South. The company prepared the contribution format segmentedincome statement shown below:

		Total Company		North		South
Sales	$	600,000	$	400,000	$	200,000
Variable expenses		360,000		280,000		80,000

Contributionmargin		240,000		120,000		120,000
Traceable fixedexpenses		120,000		60,000		60,000

Segment margin		120,000	$	60,000	$	60,000

Common fixedexpenses		50,000

Net operatingincome	$	70,000

Required:

1.	Compute thecompanywide break-even point in dollar sales .

2.	Compute thebreak-even point in dollar sales for the North region.

3.	Compute thebreak-even point in dollar sales for the South region.

greencrab122

EXERCISE 6-17 Working with a Segmented Income Statement [L06-4] Refer to the data in Exercise 6-16. Assume that Minneapolis' sales by major market are: .......................................... Variable expenses ................................ Contribution margin ............................... Traceable fixed expenses ........................ Market segment margin .......... Common fixed expenses not traceable to markets ..... Office segment margin Minneapolis $300,000 100% 180,000 60% 120,000 40% 33,000 11% 87,000 29% 15,000 5% $ 72,000 24% Market Medical Dental $200,000 100% $100,000 100% 128,000 64% 52,000 52% 72,000 36% 48,000 48% 12,000 6% 21,000 21% $ 27,000 27% 30% The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000. Required: 1. In which of the markets would you recommend that the company focus its advertising cam- paign? Show computations to support your answer. 2. In Exercise 6-16, Minneapolis shows $48,000 in traceable fixed expenses. What happened to the $48,000 in this exercise?

SMG AC 222 Lecture Notes - Lecture 6: Earnings Before Interest And Taxes, Contribution Margin, Fixed Cost

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