Question
The following partial income statements are for the Southeast and Northwest Divisions of US Games. These two divisions operate in the same industry but in
- The following partial income statements are for the Southeast and Northwest Divisions of US Games. These two divisions operate in the same industry but in different geographical markets.
Southeast Northwest
Sales $3,000,000 $3,000,000
Variable CGS (2,400,000) (1,000,000)
Variable selling costs (250,000) (250,000)
Avoidable direct fixed costs (400,000) (900,000)
Unavoidable direct fixed costs (100,000) (1,000,000)
Allocated fixed costs (300,000) (300,000)
Operating income $ (450,000) $ (450,000)
Recast the two income statements such that a segment margin is computed for each division. Based on these new income statements, are the divisions equally profitable? Why or why not? (4 marks)
What is a plausible explanation for the differences in the cost structures of the two divisions? (3 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started