The Ted Green Sales Company has two divisions. The following information is available for the year ended
Question:
The Ted Green Sales Company has two divisions. The following information is available for the year ended December 31, 2004:
The sales for the company are \($30,000\) for the Northern Division, and \($90,000\) for the Southern Division. Variable costs for the Northern Division are \($18,000\), while variable costs for the Southern Division are \($54,000\). Direct fixed costs of the Northern Division are \($5,000\) and direct fixed costs of the Southern Division are \($15,000\). The company allocates common fixed costs to segments based on relative sales. Common fixed costs for the company are $10,000.
Required:
a. Prepare a segment income statement for the company, which distributes common fixed costs to segments based on relative sales. Your answer should include a column for the total company and columns for each segment.
b. Do you think it is wise to evaluate the performance of a business segment based on income that includes an allocation for common fixed costs? Why or why not?
c. Prepare a segment income statement for the company, which does not distribute common fixed cost to segments. Your answer should include a column for the total company and columns for each segment.
Step by Step Answer:
Introduction To Management Accounting A User Perspective
ISBN: 9780130327505
2nd Edition
Authors: Michael L Werner, Kumen H Jones