Albrecht 19.pdf - Marriott School

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EOC | Controlling Cost, Profit, and Investment Centers Chapter 19 989
E 19-34
LO3
Evaluating Performance with Segment and Contribution Margins
Sunshine Center’s three profit centers had the following operating data during 2009:
Harrisburg Scranton Albany
Revenue (at $21.50 per unit) . . . . . . . . . . . . . . . . . . . . $322,500 $215,000 $430,000
Fixed costs:
Costs unique to the division . . . . . . . . . . . . . . . . . . . 131,150 64,500 150,500
Costs allocated by corporate headquarters . . . . . . . . 45,150 30,100 60,200
Variable costs per unit . . . . . . . . . . . . . . . . . . . . . . . . . 13 14 10
Sunshine’s management is concerned because the company is losing money. They ask you to:
1. Calculate each profit center’s contribution and segment margins, and overall company
profits.
2. Determine, on the basis of these calculations, which center(s), if any, should be discontinued.
(Assume that the 2009 performance is indicative of all future years. Ignore all
nonfinancial factors.)
E 19-35
LO3
Measuring Performance Using Segment and Contribution Margins
El Pico Company has two divisions: Maya and Aztec. During 2009, they had the following
operating data:
Maya
Division
Aztec
Division
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 $120,000
Fixed costs:
Costs unique to the division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 45,000
Costs allocated by corporate headquarters . . . . . . . . . . . . . . . . . . . . . 11,000 10,000
Variable costs per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4
Unit sales price of division’s product . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 8
1. Compute each division’s contribution and segment margins, and the contribution each
makes to overall company profits.
2. Interpretive Question: Based on only the financial information given, should either division
be discontinued Why
E 19-36
LO3
Revenue Variances
Fabulous Fragrances makes two products: lotion and shampoo. Actual and expected revenue
data for the two products are as follows:
Actual Data
Units Sold
Sales Price
Lotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,400 bottles $11
Shampoo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,800 bottles 9
Expected Data
Units Sold
Sales Price
Lotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 bottles $12
Shampoo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600 bottles 8
Using the above data, compute the sales price and sales volume variances for lotion and
shampoo for Fabulous Fragrances.