AN

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 ofFedEx Corporation.

Address:www.fedex.com/us/investorrelations, or go towww.wiley.com/college/kimmel

Steps

• 1.Go to the site above.
• 2.Under "Financial Information," choose "Annual Reports."
• 3.Choose "2013 Annual Report."

Instructions

(a)Read 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)The report lists the operating expenses of FedEx Ground. Assuming that rentals, depreciation, and "other" are all fixed costs, need to prepare variable costing income statement for 2013, and compute the division's contribution margin ratio and the break-even point in dollars.

(c)Note 14 ("Business segment information") provides additional information regarding the relative profitability of the business segments.

• i.Calculate the sales mix for 2011 and 2013. (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) for three divisions. List these for each division for 2011 and 2013.
• 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 2011 to 2013?