he year for a selling price of $26 each—These items cost $16 each and had $2 of variable selling expenses (sales commissions) that could be directly traced to the units. Fixed Division Operating Costs that could be directly traced to the divisions were $160,000 for East Division and $95,000 for West Division, and $200,000 for South Division. There were $230,000 of Corporate Costs (which was $20,000 for corporate advertising and $210,000 for corporate administration) which the company decided to allocate to the divisions based on the relative sales amounts for a prior year such that East would be responsible for 40%, West would be responsible for 15%,
Fortunate Inc. is involved in retailing and has three profit centers classified as “East” and “West” and “South.” East Division sold 38,000 units during the year for a selling price of $25 each—These items cost $15 each and had $2.50 of variable selling expenses (sales commissions) that could be directly traced to the units. West Division sold 16,000 units during the year for a selling price of $27 each—These items cost $17 each and that had $3 of variable selling expenses (sales commissions) that could be directly traced to the units. South Division sold 42,000 units during the year for a selling price of $26 each—These items cost $16 each and had $2 of variable selling expenses (sales commissions) that could be directly traced to the units. Fixed Division Operating Costs that could be directly traced to the divisions were $160,000 for East Division and $95,000 for West Division, and $200,000 for South Division. There were $230,000 of Corporate Costs (which was $20,000 for corporate advertising and $210,000 for corporate administration) which the company decided to allocate to the divisions based on the relative sales amounts for a prior year such that East would be responsible for 40%, West would be responsible for 15%, and South would be responsible for 45% of the total Corporate Costs.
REQUIRED: Prepare the appropriate income statements for evaluating each of the profit centers and rank their performance by indicating which segment is the best, which is second, and which is third. Also indicate if any of the three divisions should be considered for discontinuance based on decision rules covered in this class and explain.
Trending now
This is a popular solution!
Step by step
Solved in 8 steps
