Question
Hi, please help!!! Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The companys major product lines are furniture,
Hi, please help!!!
| Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The companys major product lines are furniture, sports equipment, and household appliances. At a recent meeting of Pacific Rims 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 controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that income statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into corporate 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 | Appliances | Total | |||||||||
| Production and sales in units | 160,000 | 180,000 | 160,000 | 500,000 | ||||||||
| Average selling price per unit | $ | 9.00 | $ | 21.00 | $ | 14.00 | ||||||
| Average variable manufacturing cost per unit | 5.00 | 9.60 | 8.26 | |||||||||
| Average variable selling expense per unit | 2.00 | 2.20 | 2.25 | |||||||||
| Fixed manufacturing overhead, excluding depreciation | $ | 512,000 | ||||||||||
| Depreciation of plant and equipment | 412,000 | |||||||||||
| Administrative and selling expense | 1,190,000 | |||||||||||
| 1. | 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. |
| 2. | 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. |
| 3. | 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 a segment. For example, manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be allocated to geographic areas. Murphy used the following data for this allocation. |
| Manufacturing Staff | Sales Staff | ||||||
| Furniture | $ | 121,000 | United States | $ | 61,000 | ||
| Sports | 141,000 | Canada | 101,000 | ||||
| Appliances | 81,000 | Asia | 251,000 | ||||
| 4. | The division managers were able to provide reliable sales percentages for their product lines by geographical area. |
| Percentage of Unit Sales | ||||||
| United States | Canada | Asia | ||||
| Furniture | 30 | % | 20 | % | 50 | % |
| Sports | 30 | % | 30 | % | 40 | % |
| Appliances | 20 | % | 20 | % | 60 | % |
| Murphy prepared the following product-line income statement based on the data presented above. |
| PACIFIC RIM INDUSTRIES | |||||||||||||||
| Segmented Income Statement by Product Lines | |||||||||||||||
| For the Fiscal Year Ended April 30, 20x0 | |||||||||||||||
| Product Lines | |||||||||||||||
| Furniture | Sports | Appliances | Unallocated | Total | |||||||||||
| Sales in units | 160,000 | 180,000 | 160,000 | ||||||||||||
| Sales | $ | 1,440,000 | $ | 3,780,000 | $ | 2,240,000 | $ | 7,460,000 | |||||||
| Variable manufacturing and selling costs | 1,120,000 | 2,124,000 | 1,681,600 | $ | 4,925,600 | ||||||||||
| Contribution margin | $ | 320,000 | $ | 1,656,000 | $ | 558,400 | $ | 2,534,400 | |||||||
| Fixed costs: | |||||||||||||||
| Fixed manufacturing overhead | $ | 100,000 | $ | 225,000 | $ | 187,000 | $ | $ | 512,000 | ||||||
| Depreciation | 131,000 | 147,000 | 134,000 | 412,000 | |||||||||||
| Administrative and selling expenses | 121,000 | 143,000 | 82,000 | 844,000 | 1,190,000 | ||||||||||
| Total fixed costs | $ | 352,000 | $ | 515,000 | $ | 403,000 | $ | 844,000 | $ | 2,114,000 | |||||
| Operating income (loss) | $ | (32,000 | ) | $ | 1,141,000 | $ | 155,400 | $ | (844,000 | ) | $ | 420,400 | |||
| Required: | |
| 1. | Prepare a segmented income statement for Pacific Rim Industries based on the company's geographical areas. (Input all amounts as positive values except losses which should be indicated by minus sign. Do not round intermediate calculations and round final answers to the nearest dollar amount. Omit the "$" sign in your response.) |
| PACIFIC RIM INDUSTRIES | |||||
| SEGMENTED INCOME STATEMENT BY GEOGRAPHIC AREAS | |||||
| FOR THE FISCAL YEAR ENDED APRIL 30, 20x0 | |||||
| Geographic Areas | |||||
| United States | Canada | Asia | Unallocated | Total | |
| Sales in units | |||||
| Furniture | |||||
| Sports | |||||
| Appliances | |||||
| Total unit sales | |||||
| Revenue | |||||
| Furniture | $ | $ | $ | $ | |
| Sports | |||||
| Appliances | |||||
| Total revenue | $ | $ | $ | $ | |
| Variable costs | |||||
| Furniture | $ | $ | $ | $ | |
| Sports | |||||
| Appliances | |||||
| Total variable costs | $ | $ | $ | $ | |
| Contribution margin | $ | $ | $ | $ | |
| Fixed costs | |||||
| Manufacturing | |||||
| overhead | $ | $ | $ | $ | |
| Depreciation | |||||
| Administrative and selling expenses | $ | ||||
| Total fixed costs | $ | $ | $ | $ | $ |
| Operating income (loss) | $ | $ | $ | $ | $ |
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Authors: Munawer Sultan Khwaja, Rajul Awasthi, Jan Loeprick
1st Edition
0821387545, 978-0821387542
