Asian Style Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are 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:

Product lines

Furniture

Sports

Housewares

Total

Production and sales in units

80 000

90 000

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

Average variable selling expense per unit

$4.00

$5.00

$4.50

Fixed manufacturing overhead, excluding depreciation

$500 000

Depreciation of plant and equipment

$400 000

Administrative and selling expense

$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, manufacturing staff salaries would be allocated to geographical areas. Murphy used the following data for this allocation:

Manufacturing staff

Sales staff

Furniture

$120 000

Australia

$60 000

Sports

140 000

New Zealand

100 000

Housewares

80 000

Singapore

250 000

The division managers were able to provide reliable sales percentages for their product lines by geographical area.

Percentage of unit sales

Australia

New Zealand

Singapore

Furniture

40%

10%

50%

Sports

40%

40%

20%

Housewares

20%

20%

60%

Murphy prepared the following product-line profit statement based on the above data.

Asian Style Industries

Profit statement by product lines for the year ended 30 June

Product lines

Furniture

Sports

Housewares

Unallocated

Total

Sales in units

80 000

90 000

80 000

Sales

$1 280 000

$3 600 000

$2 400 000

-

$7 280 000

Variable manufacturing and selling costs

960 000

2 160 000

1 680 000

-

4 800 000

Contribution margin

$320 000

$1 440 000

$720 000

-

$2 480 000

Fixed costs:

Fixed manufacturing overhead

$100 000

$225 000

$175 000

-

$500 000

Depreciation

128 000

144 000

128 000

-

400 000

Administrative and selling expenses

120 000

140 000

80 000

820 000

$1 160 000

Total fixed costs

$348 000

$509 000

$383 000

$820 000

$2 060 000

Profit (loss)

$(28 000)

$931 000

$337 000

$(820 000)

$420 000

Required:

Make a profit statement for Asian Style Industries detailing profitability for the company's geographical areas