The marketing segment sales for Caterpillar, Inc., for a recent year follow:

	Caterpillar, Inc. Machinery and Engines Marketing Segment Sales (in millions)
	Building Construction Products		Cat Japan		Core Components		Earth moving		Electric Power		Excavation		Large Power Systems		Logistics		Marine & Petroleum Power		Mining		Turbines
Sales	$2,217		$1,225		$1,234		$5,045		$2,847		$4,562		$2,885		$659		$2,132		$3,975		$3,321

In addition, assume the following information:

	Building Construction Products		Cat Japan		Core Components		Earth moving		Electric Power		Excavation		Large Power Systems		Logistics		Marine & Petroleum Power		Mining		Turbines
Variable cost of goods sold as a percent of sales	45%		55%		49%		51%		54%		52%		53%		50%		50%		52%		48%
Dealer commissions as a percent of sales	9%		11%		8%		8%		10%		6%		5%		10%		9%		7%		9%
Variable promotion expenses (in millions)	310		120		150		600		200		600		300		75		270		480		400

a. Use the sales information and the additional assumed information to prepare a contribution margin by segment report. Round answers to two decimal places, except for contribution margin ratio, which should be rounded to one decimal place. Enter all amounts as positive numbers.

Caterpillar, Inc.
Contribution Margin by Segment (assumed)
(in millions, except ratio figures)
	Building Construction Products	Cat Japan	Core Components	Earthmoving	Electric Power	Excavation	Large Power Systems	Logistics	Marine and Petroleum Power	Mining	Turbines
Sales	$	$	$	$	$	$	$	$	$	$	$
Variable cost of goods sold
Manufacturing margin	$	$	$	$	$	$	$	$	$	$	$
Dealer commissions	$	$	$	$	$	$	$	$	$	$
Variable promotion expense
Variable selling expenses	$	$	$	$	$	$	$	$	$	$	$
Contribution margin	$	$	$	$	$	$	$	$	$	$	$
Contribution margin ratio	%	%	%	%	%	%	%	%	%	%	%

Feedback

a. Sales - variable cost of goods sold = manufacturing margin; Manufacturing margin - variable expenses* = contribution margin *Variable expenses = Dealer commissions, variable promotion expenses, variable selling expenses To calculate the contribution margin ratio, divide the contribution margin by sales.

Learning Objective 4.

b. Prepare a table showing the manufacturing margin, dealer commissions, and variable promotion expenses as a percent of sales for each segment. Round percents to one decimal place, if required. Enter all amounts as positive numbers.

Caterpillar, Inc.
Manufacturing Margin by Segment (assumed)
(in millions, except ratio figures)
	Building Construction Products	Cat Japan	Core Components	Earthmoving	Electric Power	Excavation	Large Power Systems	Logistics	Marine and Petroleum	Mining	Turbines
Manufacturing margin	%	%	%	%	%	%	%	%	%	%	%
Dealer commissions	%	%	%	%	%	%	%	%	%	%	%
Variable promotion expenses	%	%	%	%	%	%	%	%	%	%	%
Contribution margin ratio	%	%	%	%	%	%	%	%	%	%	%

Feedback

b. To calculate relative percentages, divide each item by sales.

Learning Objective 4.

c. All of the following are contributing reasons that Cat Japan is the poorest performing segment except:

1. The manufacturing margin as a percentage of sales is the lowest.
2. The dealer commissions as a percentage of sales are the highest.
3. The variable promotion expenses as a percentage of sales are the highest.
4. The variable cost of goods sold as a percentage of sales is the highest.
5. None of these choices is correct.

The correct answer is: d