Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and household appliances. At a recent meeting of Pacific Rim's board of directors, there was a lengthy discussion on ways to improve overall corporate profitability. The members of the board decided that they required additional financial information about individual corporate operations in order to target areas for improvement. Danielle Murphy, the controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that income statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into corporate operations. Murphy had several discussions with the division managers for each product line and compiled the following information from these meetings. Furniture 132,500 $ 10.00 6.00 2.00 Product Lines Sports 190,800 $ 25.00 10.00 2.50 Appliances 132,500 $ 20.00 15.50 Total 455,800 Production and sales in units Average selling price per unit Average variable manufacturing cost per unit Average variable selling expense per unit Fixed manufacturing overhead, excluding depreciation Depreciation of plant and equipment Administrative and selling expense 1.50 2$ 498,000 364,640 1,260,000 1. The division managers concluded that Murphy should allocate fixed manufacturing overhead to both product lines and geographic areas on the basis of the ratio of the variable costs expended to total variable costs. 2. Each of the division managers agreed that a reasonable basis for the allocation of depreciation on plant and equipment would be the ratio of units produced per product line (or per geographical area) to the total number of units produced. 3. There was little agreement on the allocation of administrative and selling expenses, so Murphy decided to allocate only those expenses that were traceable directly to a segment. For example, manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be allocated to geographic areas. Murphy used the following data for this allocation. Manufacturing Staff $121,000 141,000 81,000 Sales Staff United States Canada Asia $ 61,000 101,000 251,000 Furniture Sports Appliances

Pacific Rim Industries is a diversified company whose products are marketed both domestically and internationally. The company's major product lines are furniture, sports equipment, and household appliances. At a recent meeting of Pacific Rim's board of directors, there was a lengthy discussion on ways to improve overall corporate profitability. The members of the board decided that they required additional financial information about individual corporate operations in order to target areas for improvement. Danielle Murphy, the controller, has been asked to provide additional data that would assist the board in its investigation. Murphy believes that income statements, prepared along both product lines and geographic areas, would provide the directors with the required insight into corporate operations. Murphy had several discussions with the division managers for each product line and compiled the following information from these meetings. Furniture 132,500 $ 10.00 6.00 2.00 Product Lines Sports 190,800 $ 25.00 10.00 2.50 Appliances 132,500 $ 20.00 15.50 Total 455,800 Production and sales in units Average selling price per unit Average variable manufacturing cost per unit Average variable selling expense per unit Fixed manufacturing overhead, excluding depreciation Depreciation of plant and equipment Administrative and selling expense 1.50 2$ 498,000 364,640 1,260,000 1. The division managers concluded that Murphy should allocate fixed manufacturing overhead to both product lines and geographic areas on the basis of the ratio of the variable costs expended to total variable costs. 2. Each of the division managers agreed that a reasonable basis for the allocation of depreciation on plant and equipment would be the ratio of units produced per product line (or per geographical area) to the total number of units produced. 3. There was little agreement on the allocation of administrative and selling expenses, so Murphy decided to allocate only those expenses that were traceable directly to a segment. For example, manufacturing staff salaries would be allocated to product lines, and sales staff salaries would be allocated to geographic areas. Murphy used the following data for this allocation. Manufacturing Staff $121,000 141,000 81,000 Sales Staff United States Canada Asia $ 61,000 101,000 251,000 Furniture Sports Appliances

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 22E: Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different...

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