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ACCT 386 - Week 4 - Homework - Question 5

ACCT 386 - Week 4 - Homework - Question 5
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ACCT 386 - Week 4 - Homework - Question 5

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Question 5

Brabant NV 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 €.)

 

Sales Territory

 

Southern
Europe

Middle
Europe

Northern
Europe

  Sales

313,000    

799,000     

696,000    

 







  Territorial expenses (traceable):

 

 

 

 

 

 

       Cost of goods sold

 

95,000    

 

242,000     

 

313,000    

       Salaries

 

54,000    

 

59,000     

 

107,000    

       Insurance

 

8,600    

 

16,100     

 

14,300    

       Advertising

 

105,000    

 

239,000     

 

235,000    

       Depreciation

 

20,000    

 

34,000     

 

25,000    

       Shipping

 

18,000    

 

34,000     

 

40,000    

 







  Total territorial expenses

 

300,600    

 

624,100     

 

734,300    

 







  Territorial income (loss)
    before corporate expenses

 

12,400    

 

174,900     

 

(38,300)   

 







  Corporate expenses:

 

 

 

 

 

 

       Advertising (general)

 

15,000    

 

38,000     

 

37,000    

       General administrative

 

21,000    

 

21,000     

 

21,000    

 







  Total corporate expenses

 

36,000    

 

59,000     

 

58,000    

 







  Net operating income (loss)

(23,600)   

115,900     

(96,300)   

 














    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 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.)