1.
Draft a contribution income statement for F Company.
1.
Explanation of Solution
Prepare a contribution income statement for F Company.
| Particulars | Total ($) | Not allocated ($) | London ($) | New York ($) |
| Net sales | 3,500,000 | 1,400,000 | 2,100,000 | |
| Variable cost | ||||
| COGS | 1,862,000 | 728,000 (1) | 1,134,000 | |
| Operating cost | 1,092,000 | 504,000 (4) | 588,000 | |
| Total variable cost | 2,954,000 | 1,232,000 | 1,722,000 | |
| Contribution margin | 546,000 | 168,000 | 378,000 | |
| Less: Controllable fixed cost (6) | 250,000 | 50,000 | 100,000 | 100,000 |
| Controllable margin | 296,000 | 68,000 | 278,000 | |
| Less: Non controllable fixed cost (8) | 220,000 | 22,000 | 110,000 | 88,000 |
| Contribution by profit center | 76,000 | 72,000 | (42,000) | 190,000 |
| Less: Non traceable costs | 70,000 | |||
| Operating income | 6,000 |
Table (1)
Breakdown for the New York store:
| Particulars | New York ($) | Not allocated ($) | Men’s Wear ($) | Women’s wear ($) |
| Net sales (2) | 2,100,000 | 840,000 | 1,260,000 | |
| Variable cost | ||||
| COGS (3) | 1,134,000 | 378,000 | 756,000 | |
| Variable operating cost (5) | 588,000 | 184,800 | 403,200 | |
| Contribution margin | 378,000 | 277,200 | 100,800 | |
| Controllable fixed cost (7) | 100,000 | 15,000 | 45,000 | 40,000 |
| Controllable margin | 278,000 | 232,200 | 60,800 | |
| Non controllable fixed costs (9) | 88,000 | 44,000 | 30,800 | 13,200 |
| Contribution by profit center | 190,000 | 59,000 | 201,400 | 47,600 |
Table (2)
Working notes:
1) Calculate the cost of goods sold (London):
2) Calculate the sales of Hartford clothing and cycle:
For New York men’s wear sale:
For New York women’s wear sale:
3) Calculate the cost of goods sold (New York):
For cost of goods sold of New York men’s wear:
For cost of goods sold of New York women’s wear:
4) Calculate the variable operating cost of London:
5) Calculate the operating cost of New York:
For New York men’s wear:
For New York women’s wear:
6) Calculate the fixed controllable cost:
For London:
For New York:
Not allocated:
7) Calculate the fixed controllable cost of New York men’s wear and women’s wear:
For New York men’s wear:
For Hartford cycles:
Not allocated:
8) Calculate the non-controllable fixed cost:
For London:
For New York:
Not allocated:
9) Calculate the fixed non-controllable cost of Hartford clothing and cycle:
For New York men’s wear:
For New York women’s wear:
Not allocated:
2.
Describe the global issues that are part of evaluation of profit center in Company F.
2.
Explanation of Solution
The global issues that Company F would face are as follows:
- Foreign currency translation as the US dollar fluctuates relatively to the UK pound. It is difficult to determine the currency change but it is important to anticipate a change of income as a result of fluctuations in the currency.
- The state of economies of different countries in which Company F is doing business. The economies of the countries may be either not weaken or strengthen at the same time hence, it will be different for business in different location.
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Chapter 18 Solutions
COST MANAGEMENT LOOSELEAF CUSTOM
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