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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Segment analysis

McHale Company does business in two customer segments, Retail and Wholesale. The following annual revenue information was determined from the accounting system’s invoice information:

Chapter 5, Problem 5.5APE, Segment analysis McHale Company does business in two customer segments, Retail and Wholesale. The

Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.

To determine

Segment Analysis

Business can be classified by regions, products or services, types of customers and more; each classification is treated as one segment of the business. Revenues earn from different segments individually, are called segment revenue. Segment revenues are determined from the invoiced data entered in the accounting system. Segment analysis is done to analyze the contribution of different segments to the total operating performance of the company. It is done with the help of horizontal and vertical comparisons.

Horizontal Analysis

This analysis is done to show the trend of various components in financial statements over a period of time. The earliest period is used as the base period and components of financial statements of later periods are compared with the components of the base period.

Vertical analysis

Vertical analysis is the method of financial statement analysis, and it is useful to evaluating a company’s performance and financial condition. Vertical analysis is helpful for analyzing the changes in the financial statements over the time, and comparing the each item on a financial statement with a total amount from the same statement.

To prepare:  Horizontal and vertical analysis of the segments.

Explanation

The horizontal analysis for two customer segments of Company M is as follows:

Company M
Horizontal Analysis
2016 2015 Increase / Decrease
Amount Percent (%)
Retail $126,000 $120,000 $6,000 5.0
Whole sale $150,000 $164,000 -$14,000 -8.5
Total Revenue $276,000 $284,000 -$8,000 -2.8

Table (1)

The total revenue of Company M has been declined by 2.8% between two years. This decline happened because of the decrease in the wholesale business...

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