60.1K

Verified Solution

Link Copied!

Brabant NV of the Netherlands is a wholesale distributor of Dutch cheeses that it sells throughout the European Union. Unfortunately, the companys profits have been declining, which has caused considerable concern. To help understand the condition of the company, the managing director of the company has requested that the monthly income statement be segmented by sales territory. Accordingly, the companys accounting department has prepared the following statement for March, the more recent month. (The Dutch currency is the euro, which is designated by .) Sales Territory Southern Europe Middle Europe Northern Europe Sales 300,000 800,000 700,000 Territorial expenses (traceable): Cost of goods sold 93,000 240,000 315,000 Salaries 54,000 56,000 112,000 Insurance 9,000 16,000 14,000 Advertising 105,000 240,000 245,000 Depreciation 21,000 32,000 28,000 Shipping 15,000 32,000 42,000 Total territorial expenses 297,000 616,000 756,000 Territorial income (loss) before corporate expenses 3,000 184,000 (56,000 ) Corporate expenses: Advertising (general) 15,000 40,000 35,000 Selling and administrative 20,000 20,000 20,000 Total corporate expenses 35,000 60,000 55,000 Operating income (loss) (32,000 ) 124,000 (111,000 ) ________________________________________ Cost of goods sold, and shipping expenses are both variable; other costs are all fixed. Brabant NV purchases cheeses at auction and from farmers cooperatives, and it distributes them in the three territories shown in the statement above. Each of the three sales territories has its own manager and sales staff. The cheeses vary widely in profitability; some have a high margin, and some have a low margin. (Certain cheeses, after having been aged for long periods, are the most expensive and carry the highest margins.) Required: 1. List any disadvantages or weaknesses of the statement format listed above. (15 Marks.) 2. Explain the base that is apparently being used to allocate the corporate expenses to the territories. What are the advantages and disadvantages of using these allocations? (15 Marks.) 3. Prepare a new segmented contribution format income statement for May. Show a total column as well as data for each territory. Include percentages on your statement for all columns. Carry percentages to one decimal place (40 Marks.) 4. Analyze the statement you prepared in (3) above. What points that might help to improve the companys performance would you bring to managements attention? (30 Marks.)

Answer & Explanation Solved by verified expert

See Answer