Prepare Financial Statements Regimes
1.
a. Prepare separate financial statements reporting net income and return on sales for Aerospace and Electronics after the move where the expected lower fixed SGA of $3 million is allocated to the two divisions using:
(1). Revenues as the allocation base.
(2). Manufacturing cost as the allocation base.
(3). Manufacturing margin as the allocation base
b. Discuss how moving Aerospace into Atlanta affects the relative profitability of the Aerospace and Electronics divisions?
c. Which of the three possible allocation schemes in part (a) will each division manager (Aerospace and Electronics) prefer? Why?
d. Which method should AA use? Why?
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1.
a. Prepare separate financial statements reporting net income and return on sales for Aerospace and Electronics after the move where the expected lower fixed SGA of $3 million is allocated to the two divisions using:
(1). Revenues as the allocation base.
NOTE: Double click the table to see the workings done.
(2). Manufacturing cost as the allocation base.
(3). Manufacturing margin as the allocation base
b. Discuss how moving Aerospace into Atlanta affects the relative profitability of the Aerospace and Electronics divisions?
Basis Current Revenue Manufacturing cost Manufacturing margin
Aerospace Electronics Aerospace Electronics Aerospace Electronics Aerospace Electronics
Net income $0.9560 $3.8150 $2.0003 $4.1707 $2.0457 $4.1253 $1.9473 $4,2237
Return on sales 5.69% 9.06% 11.91% 9.91% 12.18% 9.80% 11.59% 10.03%
The ...
Solution Summary
The expert prepares financial statement regimes for net incomes.