The following selected data relate to the Ohio Division of Midwest Industries (MWI):Sales revenue$4,580,000Uncontrollable fixed costs traceable to the division1,360,000Allocated corporate overhead590,000Controllable fixed costs traceable to the division1,120,000Variable costs40% of revenueRequired: A. Compute the following for the Ohio Division: 1. Segment contribution margin.2. Controllable profit margin.3. Segment profit margin.B. Which of the three preceding measures should be used when evaluating the Ohio Division as an investment of MWI's resources? Why?C. Assume that management made the decision to prepare a segmented income statement that reflected Ohio's five operating departments. Would all $1,120,000 of the controllable fixed costs be easily traced to the departments? Briefly
explain.D. Which of the five-dollar amounts presented in the body of the problem would be used in computing the income before taxes of MWI?
What will be an ideal response?
A. 1. Segment contribution margin: $4,580,000 - ($4,580,000 × 40%) = $2,748,000
2. Controllable profit margin: $2,748,000 - $1,120,000 = $1,628,000
3. Segment profit margin: $1,628,000 - $1,360,000 = $268,000
B. Segment profit margin-This measure considers all costs of the division whether controllable or not. The company will have to judge whether the segment profit margin, even though it is not totally controllable by the division's management, is an adequate return on the assets (and effort) employed.
C. The $1,120,000 amount is easily traceable to the Ohio Division but not necessarily to the division's individual, smaller departments. Some of the costs might be traceable to these smaller units; some not. Costs that are not traceable are not allocated in an effort to avoid arbitrary results.
D. All five amounts.
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What will be an ideal response?
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