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.

Instructions

Go to the FedEx website to access the company’s 2019 annual report and then use it to answer the following questions.

a. Read page 64 of the report under the heading “Reportable Segments.” What are the four reportable segments of the company?

b. Page 69 of the report shows an income statement for the FedEx Ground segment, which lists the operating expenses  Assuming that rentals, depreciation, and “other” are all fixed costs, prepare a variable costing income statement for 2019.

c. Using the information from part b. compute the segment’s contribution margin ratio and the break-even point in sales dollars.