1.
Discuss the benefits from segment reporting for an organization. Evaluate segment reporting with respect to variable-costing basis against absorption-costing.
1.
Explanation of Solution
Segment reporting is beneficial for an organization because segmental reporting focuses on the profitability of each segment. Segment reporting aids in identifying the unprofitable segments that are lost in the overall profit of the company as a whole.
Segmental reporting is better when carried out on variable basis rather than an absorption costing because variable costing does not allow a manager to increase profits by producing for inventory. Moreover, the contribution that a segment makes to earn profit can easily be identified in the variable-costing income statements. Under absorption costing, it is difficult to determine whether an unprofitable segment makes a contribution to profit or not.
2.
Determine the contribution margin, contribution margin volume, and sales mix variances.
2.
Explanation of Solution
Contribution margin variance: Contribution margin variance reflects difference between the actual contribution margin and budgeted contribution margin. It is computed using the given formula:
Determine the contribution margin:
Contribution margin volume variance: Contribution margin volume variance reflects difference between the actual quantity sold and the budgeted quantity sold multiplied by the budgeted average unit contribution margin. It is computed using the given formula:
Determine the contribution margin volume variance:
Given, the actual units sold are 46,000 units
Working note 1: Calculate the budgeted average unit contribution margin:
Sales mix variance: The sales mix represents the part of total sales generated by each product. Sales mix variance is the summation of change in units for each product multiplied by the difference between the budgeted contribution margin and the budgeted average unit contribution margin. It is computed using the given formula:
Determine the sales mix variance for upscale lighting data:
Determine the sales mix variance for mid-range lighting data:
Determine the sales mix variance for timing device data:
Determine the sales mix variance:
3.
Describe the reasons behind the variances.
3.
Explanation of Solution
Since, the actual contribution margin is higher than budgeted the contribution margin variance is favorable. This happened due to the change in sales mix. A higher percentage of sales were possible due to the higher contribution margin of upscale lights, and a lower percentage of sales happened due to the lower contribution margin of mid-range lights.
It is to be noted that fewer units (46,000) were sold than budgeted (50,000). Therefore, it is the sales mix change that led to the higher actual contribution margin.
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Chapter 18 Solutions
CORNERSTONES OF COST MGMT.-W/CENGAGENOW
- Biotechtron, Inc., has two research laboratories in the Southwest, one in Yuma, Arizona, and the other in Bernalillo, New Mexico. The owner of Biotechtron centralized the legal services function in the Yuma office and had both laboratories send any legal questions or issues to the Yuma office. The legal services support center has budgeted fixed costs of 160,000 per year and a budgeted variable rate of 65 per hour of professional time. The normal usage of the legal services center is 2,600 hours per year for the Yuma office and 1,400 hours per year for the Bernalillo office. This corresponds to the expected usage for the coming year. Required: 1. Determine the amount of legal services support center costs that should be assigned to each office. 2. Since the offices produce services, not tangible products, what purpose is served by allocating the budgeted costs? 3. Now, assume that during the year, the legal services center incurred actual fixed costs of 163,000 and actual variable costs of 272,400. It delivered 4,180 hours of professional time2,580 hours to Yuma and 1,600 hours to Bernalillo. Determine the amount of the legal services centers costs that should be allocated to each office. Explain the purposes of this allocation. 4. Did the costs allocated differ from the costs incurred by the legal services center? If so, why?arrow_forwardGreiner Company makes and sells high-quality glare filters for microcomputer monitors. John Craven, controller, is responsible for preparing Greiners master budget and has assembled the following data for the coming year. The direct labor rate includes wages, all employee-related benefits, and the employers share of FICA. Labor saving machinery will be fully operational by March. Also, as of March 1, the companys union contract calls for an increase in direct labor wages that is included in the direct labor rate. Greiner expects to have 5,600 glare filters in inventory on December 31 of the current year, and has a policy of carrying 35 percent of the following month's projected sales in inventory. Information on the first four months of the coming year is as follows: Required: 1. Prepare the following monthly budgets for Greiner Company for the first quarter of the coming year. Be sure to show supporting calculations. a. Production budget in units b. Direct labor budget in hours c. Direct materials cost budget d. Sales budget 2. Calculate the total budgeted contribution margin for Greiner Company by month and in total for the first quarter of the coming year. Be sure to show supporting calculations. (CMA adapted)arrow_forwardAdam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for the next year: If Adam uses the step-down (sequential) method, beginning with the Maintenance Department, to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be: a. 407,500. b. 422,750. c. 442,053. d. 445,000.arrow_forward
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