segmented income statement

Project Description:

pacific rim industries is a diversified company whose products are marketed both domestically and
internationally. the company’s major product lines are furniture, sports equipment, and household appliances.
at a recent meeting of pacific rim’s board of directors, there was a lengthy discussion on ways to
improve overall corporate profitability. the members of the board decided that they required additional
financial information about individual corporate operations in order to target areas for improvement.
danielle murphy, the controller, has been asked to provide additional data that would assist the
board in its investigation. murphy believes that income statements, prepared along both product lines
and geographic areas, would provide the directors with the required insight into corporate operations.
murphy had several discussions with the division managers for each product line and compiled the following
information from these meetings.
product lines
furniture sports appliances total
production and sales in units ..................................... 160,000 180,000 160,000 500,000
average selling price per unit ..................................... $8.00 $20.00 $15.00
average variable manufacturing cost per unit .............. 4.00 9.50 8.25
average variable selling expense per unit ................... 2.00 2.50 2.25
fixed manufacturing overhead,
excluding depreciation .......................................... $ 500,000
depreciation of plant and equipment .......................... 400,000
administrative and selling expense ............................. 1,160,000
1. the division managers concluded that murphy should allocate fixed manufacturing overhead to
both product lines and geographic areas on the basis of the ratio of the variable costs expended to
total variable costs.
2. each of the division managers agreed that a reasonable basis for the allocation of depreciation on
plant and equipment would be the ratio of units produced per product line (or per geographical
area) to the total number of units produced.
3. there was little agreement on the allocation of administrative and selling expenses, so murphy
decided to allocate only those expenses that were traceable directly to a segment. for example,
manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be
allocated to geographic areas. murphy used the following data for this allocation.
■ case 12–52
segmented income
statement; international
operations
(lo 1, 5)
1. operating income (loss),
canada: $421,000
ex
544 chapter 12 responsibility accounting, quality control, and environmental cost management
manufacturing staff sales staff
furniture .................................................... $120,000 united states ........................................ $ 60,000
sports ........................................................ 140,000 canada ................................................ 100,000
appliances .................................................. 80,000 asia ..................................................... 250,000
4. the division managers were able to provide reliable sales percentages for their product lines by
geographical area.
percentage of unit sales
united states canada asia
furniture ................................................................................ 40% 10% 50%
sports .................................................................................... 40% 40% 20%
appliances .............................................................................. 20% 20% 60%
murphy prepared the following product-line income statement based on the data presented above.
pacific rim industries
segmented income statement by product lines
for the fiscal year ended april 30, 20x0
product lines
furniture sports appliances unallocated total
sales in units ..................................... 160,000 180,000 160,000
sales ................................................. $1,280,000 $3,600,000 $2,400,000 — $7,280,000
variable manufacturing
and selling costs ............................ 960,000 2,160,000 1,680,000 — 4,800,000
contribution margin ........................... $ 320,000 $1,440,000 $ 720,000 — $2,480,000
fixed costs:
fixed manufacturing overhead ........ $ 100,000 $ 225,000 $ 175,000 $ — $ 500,000
depreciation .................................. 128,000 144,000 128,000 — 400,000
administrative and selling
expenses .................................. 120,000 140,000 80,000 820,000 1,160,000
total fixed costs ......................... $ 348,000 $ 509,000 $ 383,000 $ 820,000 $2,060,000
operating income (loss) ...................... $ (28,000) $ 931,000 $ 337,000 $(820,000) $ 420,000
required:
1. prepare a segmented income statement for pacific rim industries based on the company’s
geographical areas. the statement should show the operating income for each segment.
2. as a result of the information disclosed by both segmented income statements (by product line and
by geographic area), recommend areas where pacific rim industries should focus its attention in
order to improve corporate profitability.
Skills Required:
Project Stats:

Price Type: Negotiable

Refunded
Total Proposals: 6
1 Current viewersl
118 Total views
Project posted by:

Proposals

Proposals Reputation Price offered