Transforming Regional Performance Evaluation
Monard Bradesco Services (MBS) is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in three regions: Jurong, Ang Mo Kio, Changi which are about the same size, each has its own manager and sales staff. The following statement is for August, cost of goods sold and shipping expenses are both variable; other costs are fixed. [pic]
1. Disadvantages and weakness
One of the common mistakes, the manager is sales driven without knowing if the efforts were profitable. MBS has stepped forward to have segmented income statement; by having segmented reporting has drill-down capability to help managers to identify in the expenses details of the financial performance. The segmented income statements are useful in measuring the performance of the sales region segment manager and analyzing the profitability of segments and through carefully segregate all expenses and costs that are attributable to the segments. However the statement format illustrated above required the followings to serve the purposes: a. To avoid one of the common disputes over costs, it’s essential to separate variable from fixed costs. b. We don’t see the distinction between traceable and common fixed costs is crucial in segment reporting .The general guideline is to treat as traceable costs only those costs that would disappear if the segment has discontinued. When assigning costs to segments , the key point is to refrain allocating costs such as corporate expenses that are clearly common and will continues regardless of whether the segment exists or not. c. There is a fixed 4% of corporate advertising ( general ) has been allocated accordingly to their sales volume but it has a fixed sum $50,000 general administrative expenses to each segment regardless of their sales revenue. This is an inconsistent allocation method in both , it makes more sense that more corporate general...
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