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A. Kerawang Sdn. Bhd., a furniture store, has two divisions, Wood and Steel. Below is the company's most recent monthly contribution format income statement.
A. Kerawang Sdn. Bhd., a furniture store, has two divisions, Wood and Steel. Below is the company's most recent monthly contribution format income statement. Required: Sales Variable expenses Contribution Margin Traceable fixed expenses: Advertising Depreciation Administration Total Divisional segment margin Common fixed expenses Net operating income RM 1,200,000 564,000 636,000 240,000 112,000 176,000 528,000 108,000 80000 28,000 a) Given the average operating assets is RM350,000. Compute return on investment (ROI) in terms of margin and turnover. (3 marks) b) The management has shocked with the low ROI as obtained in (a). In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information. Division Wood Steel Sales RM480,000 RM720,000 Variable expenses as a percentage of sales Traceable fixed expenses: 50% 45% Advertising RM96,000 RM144,000 Depreciation RM38,400 RM73,600 Administration RM81,600 RM94,400 Prepare a contribution format income statement segmented by divisions, as desired by the president. (13 marks) c) From the income statement, give a possible reason for low ROI obtained by Kerawang Sdn. Bhd. (2 marks)
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