ACCTG322 Chapter Notes - Chapter 11: Fide, Contribution Margin, Earnings Before Interest And Taxes
Get access
Related Documents
Related Questions
Diego Company manufactures one product that is sold for $70 per unit in two geographic regions—the East and West regions. The following information pertains to the company’s first year of operations in which it produced 41,000 units and sold 36,000 units. Variable costs per unit: Manufacturing: Direct materials $ 20 Direct labor $ 10 Variable manufacturing overhead $ 2 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 984,000 Fixed selling and administrative expenses $ 308,000 The company sold 26,000 units in the East region and 10,000 units in the West region. It determined that $150,000 of its fixed selling and administrative expenses is traceable to the West region, $100,000 is traceable to the East region, and the remaining $58,000 is a common fixed cost. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.
13. | Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions. INCOME STATEMENT
|
14. Diego is considering eliminating the West region because an internally generated report suggests the region’s total gross margin in the first year of operations was $10,000 less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West region, the East region's sales will grow by 6% in Year 2. Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2? Profit will _____ by _____
15. Assume the West region invests $31,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If all else remains constant, what would be the profit impact of pursuing the advertising campaign? Profit will _____ by _____
Vulcan Company's contribution format income statement for Juneis given below:
Vulcan Company Income Statement For the Month Ended June 30 | |
Sales | $859,000 |
Variable expenses | 396,858 |
Contribution margin | 462,142 |
Fixed expenses | 436,372 |
Netoperating income | $25,770 |
Management isdisappointed with the company's performance and is wondering whatcan be done to improve profits. By examining sales and costrecords, you have determined the following: |
a. | The company is divided into two salesterritories%u2014Northern and Southern. The Northern territoryrecorded $411,000 in sales and $209,850 in variable expenses duringJune; the remaining sales and variable expenses were recorded inthe Southern territory. Fixed expenses of $150,000 and $120,000 aretraceable to the Northern and Southern territories, respectively.The rest of the fixed expenses are common to the twoterritories. |
b. | The company is the exclusive distributor for twoproducts%u2014Paks and Tibs. Sales of Paks and Tibs totaled$105,000 and $306,000, respectively, in the Northern territoryduring June. Variable expenses are 25% of the selling price forPaks and 60% for Tibs. Cost records show that $57,000 of theNorthern territory's fixed expenses are traceable to Paks and$50,000 to Tibs, with the remainder common to the two products. |
19.00 points
Problem 11-24 Requirement 1
Requirement 1: |
Prepare contribution format segmented incomestatements. (Roundpercentage computations to 1 decimal place. Negative amounts otherthan expenses should be indicated by a minus sign. Omit the "$" and"%" signs in your response.) |
Sales Territory | ||||||
Total Company | Northern | Southern | ||||
Amount | % | Amount | % | Amount | % | |
Sales | $ | $ | $ | |||
Variable expenses |
|
|
| |||
Contribution margin |
|
|
| |||
Traceable fixed expenses |
|
|
| |||
Sales territory segment margin | $ |
| $ |
| ||
Common fixed expenses | ||||||
Netoperating income | $ |
| ||||
Product Line | ||||||
Northern Territory | Paks | Tibs | ||||
Amount | % | Amount | % | Amount | % | |
Sales | $ | $ | $ | |||
Variable expenses |
|
|
| |||
Contribution margin | ||||||
Traceable fixed expenses |
|
|
| |||
Product line segment margin | $ |
| $ |
| ||
Common fixed expenses | ||||||
Sales territory segment margin | $ |
| ||||
1.00 points
Problem 11-24 Requirement 2
Requirement 2: |
Based on the above incomestatements, which of the following the statement(s) is true?(Select all thatapply.) |
The high traceable fixed expenses of the Paksproduct may simply mean that the Paks product is not highlyleveraged. | |
The Northern territory has high traceable fixedexpenses. | |
An increase in sales of Paks product line wouldnot greatly enhance profits in the Northern territory. | |
Compared to the Southern territory, the Northernterritory has a low contribution margin ratio. | |
The Northern territory has a poor salesmix. | |
Overall, compared to the Southern territory, theNorthern territory is very weak. |
Vulcan Company’s contribution format income statement for June is given below: |
Vulcan Company Income Statement For the Month Ended June 30 | ||||
Sales | $ | 900,000 | ||
Variable expenses | 400,000 | |||
Contribution margin | 500,000 | |||
Fixed expenses | 475,000 | |||
Net operating income | $ | 25,000 | ||
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following: |
a. | The company is divided into two sales territories—Northern and Southern. The Northern Territory recorded $400,000 in sales and $160,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern Territory. Fixed expenses of $176,000 and $140,000 are traceable to the Northern and Southern Territories, respectively. The rest of the fixed expenses are common to the two territories. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
b. | The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $140,000 and $260,000, respectively, in the Northern territory during June. Variable expenses are 27% of the selling price for Paks and 47% for Tibs. Cost records show that $67,200 of the Northern Territory’s fixed expenses are traceable to Paks and $57,200 to Tibs, with the remainder common to the two products. 1.) Prepare contribution format segmented income statements for the total company broken down between sales territories. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))
|
2.)
Prepare contribution format segmented income statements for the Northern Territory broken down by product line. (Round the percentage answers to one decimal place (i.e .1234 should be entered as 12.3))
|