ACC 221 Chapter : ShindlerEmily-ARP Pg7.pdf

Problem 5

Bender Company is evaluating its three divisions, the NorthAmerican Division, the South American Division and the EuropeanDivision. The following financial information is for theconsolidated company:

Revenues $10,600,000

Variablecosts 4,240,000

Contributionmargin 6,360,000

Fixedcosts 6,000,000

Netincome 360,000

During 2014 revenues for the three segments were $3,200,000,$2,900,000 and $4,500,000 respectively. Variable costs for allthree segments were 40%. Fixed costs of $2,000,000 have beenassigned to each segment. 85% of the North American fixed costs aretraceable, 70% of the South American fixed costs are traceable and90% of the European fixed costs are traceable.

Required:

Prepare a segmented income statement showing the details for thedivisions and the company as a whole.

Should any of the divisions be considered for elimination?Explain.

Based on the segmented income statement, identify specific itemsthat management should investigate further.

Prepare reports showing cost allocations on a sales value basis to the three grades of peaches. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade. (Do not round intermediate calculations.)

Woh Che Co. has four departments: materials, personnel,manufacturing, and packaging. In a recent month, the fourdepartments incurred three shared indirect expenses. The amounts ofthese indirect expenses and the bases used to allocate themfollow.