Homework Help is Here – Start Your Trial Now!
Business
Accounting
Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and household appli- ances. At a recent meeting of Pacific Rim's boo

Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and household appli- ances. At a recent meeting of Pacific Rim's boo

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and household appli- ances. At a recent meeting of Pacific Rim's board of directors, there was a lengthy discussion on ways to improve overall corporate profitability. The members of the board decided that they required additional financial information about individual corporate operations in order to target areas for improvement. Danielle Murphy, the controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that income statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into corporate operations. Murphy had several discussions with the division managers for each product line and compiled the fol- lowing information from these meetings. Product Lines Furniture Sports Appliances Total C Production and sales in units 160,000 180,000 160,000 500,000 Average selling price per unit $8.00 $20.00 $15.00 Average variable manufacturing cost per unit 4.00 9.50 8.25 Average variable selling expense per unit Fixed manufacturing overhead, excluding depreciation Depreciation of plant and equipment 2.00 2.50 2.25 $500,000 400,000 Administrative and selling expense 1,160,000 1. The division managers concluded that Murphy should allocate fixed manufacturing overhead to both product lines and geographic areas on the basis of the ratio of the variable costs expended to total variable costs. 2. Each of the division managers agreed that a reasonable basis for the allocation of depreciation on plant and equipment would be the ratio of units produced per product line (or per geographical area) to the total number of units produced. 3. There was little agreement on the allocation of administrative and selling expenses, so Murphy decided to allocate only those expenses that were traceable directly to a segment. For example, manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be allocated to geographic areas. Murphy used the following data for this allocation.
Transcribed Image Text:Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and household appli- ances. At a recent meeting of Pacific Rim's board of directors, there was a lengthy discussion on ways to improve overall corporate profitability. The members of the board decided that they required additional financial information about individual corporate operations in order to target areas for improvement. Danielle Murphy, the controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that income statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into corporate operations. Murphy had several discussions with the division managers for each product line and compiled the fol- lowing information from these meetings. Product Lines Furniture Sports Appliances Total C Production and sales in units 160,000 180,000 160,000 500,000 Average selling price per unit $8.00 $20.00 $15.00 Average variable manufacturing cost per unit 4.00 9.50 8.25 Average variable selling expense per unit Fixed manufacturing overhead, excluding depreciation Depreciation of plant and equipment 2.00 2.50 2.25 $500,000 400,000 Administrative and selling expense 1,160,000 1. The division managers concluded that Murphy should allocate fixed manufacturing overhead to both product lines and geographic areas on the basis of the ratio of the variable costs expended to total variable costs. 2. Each of the division managers agreed that a reasonable basis for the allocation of depreciation on plant and equipment would be the ratio of units produced per product line (or per geographical area) to the total number of units produced. 3. There was little agreement on the allocation of administrative and selling expenses, so Murphy decided to allocate only those expenses that were traceable directly to a segment. For example, manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be allocated to geographic areas. Murphy used the following data for this allocation.
Chapter 12 Responsibility Accounting, Quality Control, and Environmental Cost Management Sales Staff Manufacturing Staff $ 60,000 $120,000 United States Furniture 100,000 140,000 Canada Sports 250,000 80,000 Asia Appliances 4. The division managers were able to provide reliable sales percentages for their product lines by geographical area. Percentage of Unit Sales Canada Asia United States 10% 50% 40% Furniture 40% 20% 40% Sports 60% 20% 20% Appliances Murphy prepared the following product-line income statement based on the data presented above. PACIFIC RIM INDUSTRIES Segmented Income Statement by Product Lines For the Fiscal Year Ended April 30, 20x0 Product Lines Sports Unallocated Total Appliances 160,000 Furniture Sales in units 160,000 180,000 Sales $1,280,000 $3,600,000 $2,400,000 $7,280,000 Variable manufacturing and selling costs 960,000 2,160,000 1,680,000 4,800,000 Contribution margin $ 320,000 $1,440,000 $ 720,000 $2,480,000 Fixed costs: Fixed manufacturing overhead $ 100,000 $ 225,000 $ 175,000 %24 $ 500,000 Depreciation 128,000 144,000 128,000 400,000 Administrative and selling expenses 120,000 140,000 80,000 820,000 1,160,000 Total fixed costs $ 348,000 509,000 $ 383,000 $ 820,000 $2,060,000 Operating income (loss) $ (28,000) $ 931,000 $ 337,000 $(820,000) $ 420,000 Required: 1. Prepare a segmented income statement for Pacific Rim Industries based on the company's geographical areas. The statement should show the operating income for each segment. 2. As a result of the information disclosed by both segmented income statements (by product line and by geographic area), recommend areas where Pacific Rim Industries should focus its attention in order to improve corporate profitability.
Transcribed Image Text:Chapter 12 Responsibility Accounting, Quality Control, and Environmental Cost Management Sales Staff Manufacturing Staff $ 60,000 $120,000 United States Furniture 100,000 140,000 Canada Sports 250,000 80,000 Asia Appliances 4. The division managers were able to provide reliable sales percentages for their product lines by geographical area. Percentage of Unit Sales Canada Asia United States 10% 50% 40% Furniture 40% 20% 40% Sports 60% 20% 20% Appliances Murphy prepared the following product-line income statement based on the data presented above. PACIFIC RIM INDUSTRIES Segmented Income Statement by Product Lines For the Fiscal Year Ended April 30, 20x0 Product Lines Sports Unallocated Total Appliances 160,000 Furniture Sales in units 160,000 180,000 Sales $1,280,000 $3,600,000 $2,400,000 $7,280,000 Variable manufacturing and selling costs 960,000 2,160,000 1,680,000 4,800,000 Contribution margin $ 320,000 $1,440,000 $ 720,000 $2,480,000 Fixed costs: Fixed manufacturing overhead $ 100,000 $ 225,000 $ 175,000 %24 $ 500,000 Depreciation 128,000 144,000 128,000 400,000 Administrative and selling expenses 120,000 140,000 80,000 820,000 1,160,000 Total fixed costs $ 348,000 509,000 $ 383,000 $ 820,000 $2,060,000 Operating income (loss) $ (28,000) $ 931,000 $ 337,000 $(820,000) $ 420,000 Required: 1. Prepare a segmented income statement for Pacific Rim Industries based on the company's geographical areas. The statement should show the operating income for each segment. 2. As a result of the information disclosed by both segmented income statements (by product line and by geographic area), recommend areas where Pacific Rim Industries should focus its attention in order to improve corporate profitability.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 9 steps with 6 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Stock Indices
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS