Variable Costing and Segment Reporting Tools for Management 4 5. Referin the printing income statements Explain why the y suffered a los is Year 3 hrepewa p in Yew the ember of in each year Explain how operates have differed in Year 2 nd Year if the company had heen using Lean Production with the result the ending inventory was zero Ir Lean Protow had been used during Year 2 nd Year, what would the company's met operating inne have been in each year underworption costing? No com pursare necessary PROBLEM 6-2 estraga S e ncome Statement 064 Milan Cowpowo is a wholesale distributofonice poducts. It purchases office products from manufacturers and write them in the West, Central and last regions. Each of these regions is whout the same and each has its own manager and sales af The y has been experiencing loses for many months. In an effort to improve perfor maman as pested that the monthly income statement he sented by sales region The first preparing a segmented income statement for May is given below. West Central $450,000 $800.000 $750,000 Regional expenses traceables Cost of goods sold .......... Advertising Salam .. . 162.900 280.000 376,500 10R 000 200.000 210,000 90.000 88.000 135.000 13 500 12.000 15,000 27.000 28.000 30.000 17.100 32.000 28,500 418.500 43 640,000 Pe 795,000 31,500 160,000 145,000) Depreciation Shipping expense... Totat regional expenses Regional income foss) before corporate expenses Corporate expenses Advertising general ... General administrative expense Total corporate expenses .... Net operating income foss)..... 18.000 32.000 50.000 50.000 68.000 82.000 $36.500) $ 78.000 30.000 50.000 80.000 $(125.000) The cost of goods sold and shipping expense are both variable. All other costs are fixed. Requiredt 1. List any weaknesses that you see in the company's segmented income statement given above. 2. Explain the basis that is apparently being used to allocate the corporate expenses to the regions. Do you agree with these allocations? Explain. 3. Prepare a new contribution format segmented income statement for May. Show a Total col- um as well as data for each region. In addition, for the company as a whole and for each sales region, show each item on the segmented income statement as a percent of sales. 4. Analyze the statement that you prepared in part (3) above. What insights do those statements reveal that you would bring to management's attention? PROBLEM 6-27 Incentives Created by Absorption Costing: Ethics and the Manager LOG-2 Carlos Cavalas, the manager of Echo Products Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 3.600 units durin the year, but by September 30 only the following activity had been reported: Units Inventory. January 1.... Production ....... Sales Inventory, September 30............... 2.400 2,000 400
