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Responsibility Segmentation Analysis (BFBS, LLC.)

Denys C. began a manufacturing organization, BFBS, LLC., in 2003. The firm specializes in natural hair care products. Most clients are mid-sized national and international retailers who have highly developed in-house marketing departments.

BFBS has proved to be highly successful in the past primarily because of the strong personal attention given to the clients by the project managers. Since inception, BFBS has expanded into four regional segments; North/South America, Europe, and Asia. The home office is in North America.

However, in the current year losses have been incurred. Each office is headed by an office manager who is responsible for all activities in that office. The managers are paid a reasonable salaries plus a bonus with two inputs. The first input is the net income of the manager's office and the second is the sharing of a portion of the overall company profits. Managers have a high level of independence to make decisions and are held accountable for the results.

Each office is allocated a portion of the non-traceable fixed costs of the organization that are common to all offices.

The current year's segmented operating results are shown in this excel spreadsheet: Responsibility Segmentation Analysis.

Notes:

Cost of Goods sold and Transportation Expenses are both variable; all other costs are fixed.

In a 2-3 page paper include the following:

Discuss the advantages and disadvantages of the format present in the excel spreadsheet Responsibility Segmentation Analysis.

Explain the allocation method used to distribute corporate expense. Is this an effective allocation method? Why or Why not?

Construct a contribution statement showing each segment using the information from the spreadsheet. Include percentages in a separate column for common size analysis purposes. Also, add a total corporation column showing percentages in a common size analysis format.

As the CFO (Chief Financial Officer) of BFBS what suggestions would you make to Denys C. and management to improve the performance of the organization?

Sales by Segment
North/South America Europe Asia
Amount Amount Amount
Sales 446000 775000 726000
Less segment expenses (traceable):
Cost of goods sold 165000 275000 374000
Transportation expense 18000 25000 26000
Marketing 109000 195000 207000
Compensation 85000 85000 125000
Factory Utilities 11500 8000 10000
Depreciation on Equipment 26000 27000 29000
Total segment expenses 414500 615000 771000
Segment Income (Loss) before allocated corporate expenses 31500 160000 (45000)

Less allocated corporate expenses:
Marketing Corporate 15000 26000 25000
Administrative Costs 45000 45000 45000
Total allocated corporate expenses 60000 71000 70000
Net operating Income (Loss) (28500) 89000 (115000)

Solution Preview

** See ATTACHED file(s) for complete details **

In the present responsibility segmentation analysis, the sales and expenses of each segment are separated and the segment income is found out and the common corporate expenses are allocated to each segment. In the present case, administrative costs are allocated to each segment equally and the marketing corporate expenses are allocated on the basis of sales of each segment in relation to the sales of entire company.
Total sales of the company: 1,947,000
Total marketing corporate expenses: 66,000
Sales of each segment:
North/south America 446,000
Europe ...

Solution Summary

Responsibility segmentation analysis is examined.

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