1. UFV BBA - II
BUS 247
(Assignment 4)
Akershit Kumar Sharma
(200106837)
Date: April 7 , 2013
Submitted To:
Prof. Mushtaq Ahmed

2. Ans. 12 - 13
1.Given, Increase in sales by $75,000
Also Contribution Margin ratio = 40%
Also, no change in cost behavior patterns.
Hence, Increase in contribution margin in Minneapolis = $75,000 × 40%
= $30,000
Because the fixed costs in the office and in the company as a whole will not change, the increase
in Net operating profit for the company will be by $30,000.
2.
a.Following is thenew segmented income statement in which Sales in Chicago increase by
$50,000 and that sales in Minneapolis remain unchanged :
Office
Total Company Chicago Minneapolis
Particulars Amount % Amount % Amount %
Sales $500,000 100.0 $200,000 100 $300,000 100
Variable expenses 240,000 48.0 60,000 30 180,000 60
Contribution margin 260,000 52.0 140,000 70 120,000 40
Traceable fixed expenses 126,000 25.2 78,000 39 48,000 16
Office segment margin 134,000 26.8 $ 62,000 31 $ 72,000 24
Common fixed expenses 63,000 12.6
not traceable to segments
Net operating income $ 71,000 14.2

3. b.The segment margin is computed by subtracting the traceable fixed costs of a segment from its
contribution margin. In this case, the contribution margin increased but there was no change in
the amount of traceable fixed costs. Hence there was an increase in the segment margin ratio.
The contribution margin ratio remained unchanged because both its components i.e. the sales
(revenues) and variable cost were increased at a same rate.
Ans. 12- 20
1. Return of Investment (ROI) = Net Operating Income
Average Operating Assets
Given, Net operating income = $405,000
Following is the lists of operating assets of the company:
Beginning Ending
Balances Balances
Cash $ 140,000 $ 120,000
Accounts receivable 450,000 530,000
Inventory 320,000 380,000
Plant and equipment (net) 680,000 620,000
Total operating assets $15,90,000 $16,50,000
Now, Average operating assets = Opening Balance + Ending Balance
2
Hence , Average operating assets = ($1,590,000 +$1,650,000) / 2
= $16,20,000
Now , ROI = 405,000/16,20,000
= 0.25 (25%)

4. Given, Sales = $40,50,000
Margin = Net Operating Income
Sales
= 405,000/ 40,50,000
= 0.1 (10%)
Turnover = Sales/ Average Operating Assets
= 40,50,000/16,20,000
= 2.5%
2. Given, Minimum required return = 15%
Also, we found, Average operating assets = $16, 20,00
Therefore,
Net operating income 405,000
Less: Minimum required return (15% × $16,20,000) 243,000
Residual income $162,000
Hence Company’s residual Income = $162,000
Note:
Residual Income = Net operating Income – (Average operating assests x Minimum required rate of return)

5. Ans. 12-24
1) Following is the contribution income statement broken into sales territory:
Sales Territory
Total Company Northern Southern
Particulars Amount($) % Amount($) % Amount($) %
Sales $750,000 100.0% $300,000 100 $450,000 100
Variable expenses 336,000 44.8% 156,000 52 180,000 40
Contribution margin 414,000 55.2% 144,000 48 270,000 60
Traceable fixed expenses 228,000 30.4% 120,000 40 108,000 24
Sales Territory segment 186,000 24.8% $ 24,000 8 $162,000 36
margin
Common fixed expenses 150,000 20.0%
not traceable to sales
territories
Net operating income $ 36,000 4.8%
Note:
Total Fixed cost = Traceable fixed cost + Common fixed cost
Therefore,
Common fixed cost = Total fixed - Traceable fixed cost
= $378,000 – $228,000
= $150,000

6. b) Following is the contribution income statement showing Northern territory broken down by
product line:
` Northern Product Line
Territory Paks Tibs
Particulars Amount % Amount % Amount %
Sales $300,000 100 $50,000 100 $250,000 100
Variable expenses 156,000 52 11,000 22 145,000 58
Contribution margin 144,000 48 39,000 78 105,000 42
Traceable fixed expenses 70,000 23.3 30,000 60 40,000 16
Product line segment margin 74,000 24.7 $ 9,000 18 $ 65,000 26
Common fixed expenses not 50,000 16.7
traceable to product lines
Sales territory segment margin $ 24,000 8
Note:
Total Fixed cost = Traceable fixed cost + Common fixed cost
Therefore,
Common fixed cost = Total fixed - Traceable fixed cost
= $120,000 – $70,000
= $50,000

7. 2. By looking at the statement it is found that the southern territory is doing very job in
comparison to the northern sector. Also the traceable cost of the northern sector is much high
than southern sector (even though sales are less in comparison to south territory). The
management should pay more attention to the northern territory and by doing so, the
management can increase its overall sales even more.
3. In the statement showing Northern Territory segmented by product lines, it was found that the
Paks were sold less in comparison to Tibs. Also the Paks products traceable fixed costs were
high though its sales were less. Hence, in the northern territory, the company should sell more of
the Tibs products because: 1) Its traceable cost is relatively less. 2) It is demanded and bought
more in northern territory.