Terrific Threads is an upscale boutique that operates various stores throughout Florida. The company, which has three divisions (Miami, Naples, and Tampa), reported the following information for the year just ended (in thousands):?MiamiNaplesTampaSales Revenue$9,000$6,000$5,000Divisional contribution margin6,4004,4003,500Profit margin controllable by division manager1,5001,9001,000Divisional profit margin1,000700200Terrific Threads also reported $600 of common fixed expenses that top management wants to allocate to the divisions on the basis of sales revenue. As the company's chief executive officer notes, "Each division helped to incur a portion of these costs and, as a result, each should absorb its fair share." The firm has adopted various responsibility accounting procedures to
evaluate division personnel.Required:A. Compute the company's total sales revenue.B. Calculate the amount of variable operating expense incurred by the Naples Division.C. Calculate the fixed costs controllable by Miami's management.D. Calculate the fixed costs traceable to the Tampa Division but controllable by others.E. Terrific Threads desires to promote a division manager to the corporate office to oversee selected operations. In determining which individual to promote, should Terrific Threads' top management focus on the profit margin controllable by the division manager or the overall divisional profit margin? Briefly explain.F. If the company follows the desires of top management, how much of the common fixed expenses would be allocated to the Tampa Division?G. Do cost allocations such as those in part "F" typically appear on a segmented income statement?
What will be an ideal response?
A. $9,000 + $6,000 + $5,000 = $20,000
B. $6,000 - $4,400 = $1,600
C. $6,400 - $1,500 = $4,900
D. $1,000 - $200 = $800
E. Top management should focus on the profit margin controllable by the division manager. The company has adopted various responsibility accounting procedures, which are based on the idea of holding personnel accountable for items under their control.
F. Tampa has 25% of the sales revenue ($5,000¸ $20,000) and, accordingly, should absorb 25% of the common fixed expenses, or $150 ($600 × 25%).
G. No
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