Segmented Reporting and Variances Pittsburgh-Walsh Company (PWC) is a manufacturing company whose product line consists of lighting fixtures and electronic timing devices. The Lighting Fixtures Division assembles units for the upscale and mid-range markets. The Electronic Timing Devices Division manufactures instrument panels that allow electronic systems to be activated and deactivated at scheduled times for both efficiency and safety purposes. Both divisions operate out of the same manufacturing facilities and share production equipment. PWC's budget for the year ending December 31, 20x1, follows and was prepared on a business segment basis under the following guidelines: a. Variable expenses are directly assigned to the incurring division b. Fixed overhead expenses are directly assigned to the incurring division C. The production plan is for 8,000 upscale fixtures, 22,000 mid-range fixtures, and 20,000 electronic timing devices. Production equals sales PWC established a bonus plan for division management that required meeting the budget's planned operating income by product line, with a bonus increment if the division exceeds the planned product line operating income by 10 percent or more PWC Budget For the Year Ending December 31, 20x1 (In Thousands of Dollars) Lighting Fixtures Electronic Timing Upscale Mid-Range Total Devices Sales $1,440 770 $800 $ 3,010 Variable expenses: (720) (170) $ 550 140 $410 Cost of goods sold (439) 60 $ 271 80 $191 (320) (1,479) (60) (290) $420 $ 1,241 300 340 $941 Selling and administrative Contribution margin Fixed overhead expenses 80 Segment margin Shortly before the year began, the CEO, Jack Parkow, suffered a heart attack and retired. After reviewing the 20x1 budget, the new CEO, Joe Kelly, decided to close the lighting fixtures mid-range product line by the end of the first quarter and use the available production capacity to grow the remaining two product lines. The marketing staff advised that electronic timing devices could grow by 40 percent with increased direct sales support. Increases above that level and increasing sales of upscale lighting fixtures would require expanded advertising expenditures to increase consumer awareness of PWC as an electronics and upscale lighting fixtures company. Kelly approved the increased sales support and advertising expenditures to achieve the revised plan Kelly advised the divisions that for bonus purposes the original product-line operating income objectives must be met, but he did allow the Lighting Fixtures Division to combine the operating income objectives for both product lines for bonus purposes. Prior to the close of the fiscal year, the division controllers were furnished with preliminary actual data for review and adjustment, as appropriate. These preliminary year-end data reflect the revised units of production amounting to 12,000 upscale fixtures, 4,000 mid-range fixtures, and 30,000 electronic timing devices and are presented as follows