Question

13-23 Companhia Bradesco, S.A., of Brazil, an industrial supply store chain, has two divisions. The company's contribution format income statement segmented by divisions for last year is given below othe currency in Braril is the real, dencted here by R Division Total Company Plastics Glass Re00 000 300 000 Sales R1.500.000 R900.000 Variable expences 700000 400000 s00,000 Contribution margin 800.000 300.000 Traceable fed expences Adverticing Depreciation 300,000 180000 120.000 140.000 92000 4000 Adminitation. 220.000 118.000 102000 390,000 R110.000 Total Divisional segment margins Common fixad expences o0,000 270,000 R 30000 140,000 100.000 Nat operating inoome R 40,000 Top management doesn't undertand why the Glass Division has such a low segment margin when its sales are only one-thind less than sales in the Plastics Division. Accondingly, management has dieected that the Glass Division be ferther sepmented into product lines. The following information is availale on the peodut lines in the Glass Division Glass Division Product Lines Flat Auto Speciality Glass Glass Glass Sales R200.000 R300,000 R100.000 Traceable fixed epense R42000 Adverticing Depreciation R30.000 R48.000 R10.000 R24.000 R14.000 Adminictration R14.000 R21.000 R7.000 Variable expenses as a pecentage of sales e5% 4g% s0% Analysis shows that R60,000 of the Glass Division's administration expenses are common to the product lines Requred I Prepare a coatribution format segmented income statement for the Glass Division with segments defined as peoduct lines. 2 Management is surprised by Specialy Glass's poor showing and would like to hune the product line sepmented by market The following infomation is available about the two markets in which Specidly Glass is sold Specialty Glass Markets Domestic Foreign R40.000 Sales Re0000 Traceable fad expences: Advticing Variable expences as a percentage of sales R18.000 R30.000 50% 50 All of Specialty Glass's depeeciation and administration expenses are common to the markcts in which the peoduct is sold. Prepare a contribution foemat segmented income statement for Specialty Glass with segments deined as markets Refer to the statement prepured in () above, The sakes manaper wants to run a seecial reomotional campaign on one of the peoducts over the nest month A market study indicates that such a campaigs would increase sales of Flat Glass by R40,000 or sales of Auto Glass by R30,000. The campaigs would cost RS,000. Show computations to determine which prodact line should be chosen. 3 13-23 Companhia Bradesco, S.A., of Brazil, an industrial supply store chain, has two divisions. The company's contribution format income statement segmented by divisions for last year is given below othe currency in Braril is the real, denctod here by Ri Division Total Company Plastics Glass Re00 000 300 000 Sales R1.500.000 R900.000 Variable expences 700,000 400.000 Contribution margin s00,000 800,000 300.000 Traceable fed expences Adverticing 300,000 180000 120000 Depreciation Administration Total 140.000 92000 4000 220.000 118.000 102000 o0.000 390,000 270,000 Dvisional cegment margins Common fixad espences Net operating income R110.000 R 30000 140,000 100.000 R 40,000 Top management doesn't undentand why the Glass Division has sach a low segment margin when its sales are only one-thind less than sales in the Plastics Division. Accordingly, management has diected that the Glass Division be ferther segmented into product lines. The following isformation is availale on the peodut lines in the Glass Division Glass Division Product Lines Flat Auto Specialty Glass Glass Glass R100 000 Sales R200 000 R300,000 Traceable fixed expenses Advertising Depreciation Adminictration R30.000 R42000 R48.000 R10.000 R24.000 R14.000 R14.000 R21.000 R7.000 Variable expenses as a pecentage of sales e5% 4g% s0% Analysis shows that R60,000 of the Glass Division's administration expenses are common to the peoduct lines Reqared I. Prepare a coatribution format segmented income statement for the Glass Division with sepments defined as peoduct lines. 2 Management is surprised by Specialry Glass's poor showing and would like to hune the product line sepmented by market. The following inomation is available about the two markets in which Specidty Glass is sold Specialty Glass Markets Domestic Foreign R00 000 R40,000 Sales Traceable fad axpences: Advticing- Variable expences as a percentage of sale R18.000 R30 000 50% 50 All of Specialty Glass's depeeciation and administration expenses are common to the markets in which the peoduct is sold. Prepare a contribution foemat segmented income statement for Specialty Glass with segments deined as markets 3. Refer to the statement prepared in (1) above. The sales manager wants to run a special peomotional campaign on one of the peoducts over the nest month A market study indicates tht such a campaigs would increase sales of Flat Glass by R40,000 or sales of Auto Glass by R30,000. The campaiga would cost RS,000. Show computations to determine which prodact line should be chosen.

Answer 1

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Part 1
			Glass Division	Flat Glass	Auto Glass	Speciality Glass
Sales			$           600,000	$200,000	$   300,000	$           100,000
Less: Variable Expense			$           300,000	$130,000	$   120,000	$             50,000
Contribution Margin			$           300,000	$   70,000	$   180,000	$             50,000
Less: Traceable Fixed Expense:
Advertising			$           120,000	$   30,000	$     42,000	$             48,000
Depreciation			$             48,000	$   10,000	$     24,000	$             14,000
Administration			$             42,000	$   14,000	$     21,000	$               7,000
Total			$           210,000	$   54,000	$     87,000	$             69,000
Product Line Segment Margin			$             90,000	$   16,000	$     93,000	$            -19,000
Less Common Fixed Expense:
Administration			$             60,000
Divisional Segment Margin			$             30,000
Part 2
			Speciality Glass	Domestic	Foreign
Sales			$           100,000	$   60,000	$     40,000
Less: Variable Expense			$             50,000	$   30,000	$     20,000
Contribution Margin			$             50,000	$   30,000	$     20,000
Less: Traceable Fixed Expense:
Advertising			$             48,000	$   18,000	$     30,000
Total			$             48,000	$   18,000	$     30,000
Product Line Segment Margin			$               2,000	$   12,000	$    -10,000
Less Common Fixed Expense:
Depreciation			$             14,000
Administration			$               7,000
Divisional Segment Margin			$            -19,000
Part 3
				Flat Glass	Auto Glass
Increased Sales				$   40,000	$     30,000
Contribution Margin Ratio				35.00%	60.00%
Incremental Contribution Margin				$   14,000	$     18,000
Less: Promotional Cost				$     8,000	$       8,000
Increased Net Oprating Income				$     6,000	$     10,000