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    BFBS, LLC. Segment margin analysis

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    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.

    * 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.

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

    Advantages
    1. Presents avoidable costs by division so you can see what would be eliminated if the division is gone.
    2. Presents data showing the corporate allocations.
    3. Gives the managers the data on their results and the net profits after allocations.
    4. Simple format that shows segment income/loss.

    Disadvantages
    1. Gives the impression that Europe is the only division really doing well (others have operating losses).
    2. Does not show the contribution margin from each division.

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

    The marketing costs are spread as a percent of sales (3.4%). This is not an effective method. By allocating based on sales, those divisions that are growing are ...

    Solution Summary

    Your tutorial is 216 words, including an excel report and some bullet points about advantages and disadvantages that you can use to expand the discussion into the length you need.

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