Drenthe BV of the Netherlands is a wholesale distributor of Dutch cheeses that i
ID: 2464330 • Letter: D
Question
Drenthe BV of the Netherlands is a wholesale distributor of Dutch cheeses that it sells throughout the European Community. Unfortunately, the company’s 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 company’s accounting department has prepared the following statement for March, the most recent month. (The Dutch currency is the euro which is designated by €.)
Cost of goods sold and shipping expenses are both variable; other costs are all fixed. Drenthe BV purchases cheeses at auction and from farmers’ cooperatives, and it distributes them in the three territories listed 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.)
Prepare a new segmented contribution format income statement for May. Show a Total column as well as data for each territory. In addition, for the company as a whole and for each sales territory, show each item on the segmented income statement as a percent of sales. (Note: % columns may not total due to rounding.) (Round percentage answers to 1 decimal place (i.e .1234 should be entered as 12.3).)
Required: Sales Territo Southern Europe 515,000 1,144,000 Middle Europe Northern Europe 783,000 Sales Territorial expenses (traceable) Cost of goods sold Salaries Insurance Advertising Depreciation Shipping 149,000 80,500 25,700 147,500 44,500 30,000 410,000 60,500 17,700 249,500 40,500 51,000 328,000 113,500 15,200 250,500 37,500 56,000 Total territorial expenses 477,200 829,200 800,700 Territorial income (loss) before corporate expenses 37,800 314,800 (17,700) Corporate expenses Advertising (general) General administrative 35,000 45,500 58,400 38,700 60,100 62,500 Total corporate expenses 80,500 97,100 122,600 Net operating income (loss) (42,700) 217,700 (140,300)Explanation / Answer
Total Southern Europe Middle Europe Northern Europe Particulars (Amount in €s) % (Amount in €s) % (Amount in €s) % (Amount in €s) % Sales 2442000 100 515000 100 1144000 100 783000 100 Variable Expenses Cost of Goods Sold 887000 36.3 149000 28.9 410000 35.8 328000 41.9 Shipping Expenses 137000 5.6 30000 5.8 51000 4.5 56000 7.2 Total Variable Expenses 1024000 41.9 179000 34.8 461000 40.3 384000 49.0 Contribution Margin 1418000 58.1 336000 65.2 683000 59.7 399000 51.0 Traceable Fixed Expenses Salaries 254500 10.4 80500 15.6 60500 5.3 113500 14.5 Insurance 58600 2.4 25700 5.0 17700 1.5 15200 1.9 Advertising 647500 26.5 147500 28.6 249500 21.8 250500 32.0 Depreciation 122500 5.0 44500 8.6 40500 3.5 37500 4.8 Total Traceable Fixed Expenses 1083100 44.4 298200 57.9 368200 32.2 416700 53.2 Territorial Segment Margin 334900 13.7 37800 7.3 314800 27.5 -17700 (2.3) Common Fixed Expenses General administration 153500 6.3 35000 6.8 58400 5.1 60100 7.7 Advertising (General) 146700 6.0 45500 8.8 38700 3.4 62500 8.0 Total Common Fixed Expenses 300200 12.3 80500 15.6 97100 8.5 122600 15.7 Net Operating Income 34700 1.4 -42700 (8.3) 217700 19.0 -140300 (17.9)
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