Brad's company, an eastern-based firm, is going through tough times. Downsizing is the only way to keep
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Brad further discovers that the net losses of the western and southwestern regions are due to fixed costs. Further investigation finds that the fixed costs can be separated by region costs and corporate costs. In Brad's investigation, the eastern region, though having all the costs of a corporate office, has lower fixed costs, making it a profitable region. Brad finds that Joe Black, the manager of the eastern region, has decided to allocate all the corporate office expenses to the other three divisions to make his region appear more profitable.
More analysis indicates that if the corporate offices are allocated evenly to all four regions, the eastern region would have a net loss and the other regions would have a slight net income. What should Brad do? Should Joe have the ability to allocate costs to other regions?
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Related Book For
College Accounting Chapters 1-30
ISBN: 978-0077862398
14th edition
Authors: John Price, M. David Haddock, Michael Farina
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