Asian Style Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines include furniture, sports equipment and household appliances. At a recent meeting of the board of directors, there was a lengthy discussion on ways to improve overall corporate profitability. The members of the board decided that they required additional financial information about individual corporate operations in order to target areas for improvement. Danielle Murphy, the financial controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that profit statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into operations. Murphy had several discussions with the division managers for each product line and compiled the following information from these meetings: Furniture Sports Product lines Housewares Total Production and sales in units 80.000 50000 80 000 250 000 Average selling price per unit $16.00 $40.00 $30.00 Average variable manufacturing cost per unit $ 8.00 $19.00 $16.50 Averal variable selling expense per unit $ 400 $5.00 $4.50 Fixed manufacturing overhead, excluding depreciation $ 500 000 Depreciation of plant and equipment Administrative and selling expense $ 400000 $1 160 000 The division managers concluded that Murphy should allocate fixed manufacturing overhead to both product lines and geographic areas on the basis of the ratio of the variable costs expended to total variable costs. Each of the division managers agreed that a reasonable basis for the allocation of depreciation on plant and equipment would be the ratio of units produced per product line (or per geographical area) to the total number of units produced. There was little agreement on the allocation of administrative and selling expenses, so Murphy decided to allocate only those expenses that were traceable directly to an area. For example, sales staff salaries would be allocated to geographical areas. Murphy used the following data for this allocation: Manufacturing staff Furniture $120 000 Sports 140 000 Australia New Zealand Housewares NO 000 Singapore Sales staff $60000 100 000 250 000 The division managers were able to provide reliable sales percentages for their product lines by geographical area. Percentage of unit sales Australle New Zealand Singapore Furniture 40% 10% 505 Sports 40% 40% 30% Housewar 20 20% Furniture 80 000 $1 280 000 Murphy prepared the following product-line profit statement based on the above data. Sales in units Sales Asian Style Industries Profit statement by product lines for the year ended 30 June Product lines Sports 90 000 Housewares Unallocated Total 80 000 $3 600 000 $2 400 000 $7 280 000 Variable manufacturing and selling costs 960 000 2160 000 1680 000 Contribution margin $320 000 $1 440 000 $ 720 000 4 800 000 $2.480 000 Fixed costs: Fixed manufacturing overhead $100.000 $225 000 $175 000 Depreciation 128000 144 000 Administrative and selling 120000 140 000 128 000 80000 820 000 $ 500 000 400 000 $1 160 000 expenses Total fixed costs $348 000 $509 000 $383 000 Profits) $(28 000) $931000 $337 000 $820 000 $(820 000) $2 060 000 $ 420 000 Part III Prepare a profit statement (by geographical area) measuring the financial performance and profitability of the company's three geographical areas.