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Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and
Pacific Rim 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 Pacific Rim's 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 Sports Appliances Furniture Total 485,900 Production and sales in units Average selling price per Average variable manufacturing cost per unit Average variable selling expense per unit Fixed manufacturing overhead, 141,250 $ 10.00 5.00 3.00 203,400 141,250 23.00 21.00 15.55 1.55 uni 9.50 3.00 excluding depreciation Depreciation of plant and equipment Administrative and selling expense 499,000 388,720 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 Furniture Sports Appliances Sales Staff $120,000 140,000 80,000 United States Canada Asia 60,000 100, 000 250,000 4. The division managers were able to provide reliable sales percentages for their product lines by geographical area Percentage of Unit Sales Furniture Sports Appliances United States 30% 30% 20% Canada 10% 30% 20% Asia 60% 40% 608 Murphy prepared the following product-line income statement based on the data presented above 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 Sports Furniture 141.250 AppliancesUnallocated Total Sales in units Sales Variable manufacturing and selling costs Contribution margin Fixed costs: 203,400 $1,412,500 $4,678,200 2,542,500 $ 282,500 $2,135,700 141,250 $2,966,250 2,415,375 550,875 $9,056,950 6,087,875 S2,969,075 1,130,000 Fixed manufacturing overhead Depreciation Administrative and selling expenses Total fixed costs $ 92,622 208,399 162,720 120,000 140,000 $325,622 $511,119 $ (43,122) $1,624,581 $ 197,979 113,000 80,000 $ 390,979 $ 159,896 $ 499,000 388,720 1,190,000 $2,077,720 (850,000) $ 891,355 113,000 850,000 $ 850,000 Operating income (loss) Required 1. Prepare a segmented income statement for Pacific Rim Industries based on the company's geographical areas. The statement should show the operating income for each segment. (Do not round your intermediate calculations and round your final answers to the nearest dollar amount.) Required: 1. Prepare a segmented income statement for Pacific Rim Industries based on the company's geographical areas. The statement should show the operating income for each segment. (Do not round your intermediate calculations and round your final answers to the nearest dollar amount.) 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 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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