The external financial statements published by publicly traded companies are based on absorption cost accounting. As a consequence, it is very difficult to gain an understanding of the relative composition of the companies’ fixed and variable costs. It is possible, however, to learn about a company’s sales mix and the relative profitability of its various divisions. This exercise looks at the financial statements of FedEx Corporation. Address: www.fedex.com/us/investorrelations, or go to www.wiley.com/college/kimmel
Steps
1. Go to the site above.
2. Under “Financial Documents,” choose “Annual Reports.”
3. Choose “2008 Annual Report.”

Instructions
(a) Read page 25 of the report under the heading “Description of Business.” What are the three primary product lines of the company? What does the company identify as the key factors affecting operating results?
(b) Page 36 of the report lists the operating expenses of FedEx Ground. Assuming that rentals, depreciation, and “other” are all fixed costs, prepare a variable costing income statement for 2008, and compute the division’s contribution margin ratio and the break-even point in dollars.
(c) Page 73, Note 13 (“Business segment information”) provides additional information regarding the relative profitability of the three business segments.
(i) Calculate the sales mix for 2006 and 2008. (Note: Exclude “other” when you calculate total revenue.)
(ii) The company does not provide the contribution margin for each division, but it does provide “operating margin” (operating income divided by revenues) on pages 34, 36, and 37. List these for each division for 2006 and 2008.
(iii) Assuming that the “operating margin” (operating income divided by revenues) moves in parallel with each division’s contribution margin, how has the shift in sales mix affected the company’s profitability from 2006 to 2008?