Accounting Case Import Distributor
Import Distributors ,Inc ( IDI ) imported and distributed appliances to retail stores in the Rocky Mountain states. IDI has three board lines of merchandise:
1. Television Equipment
2. Audio Equipment
3. Kitchen Appliances
Each line accounted for about one-third of total sales IDI sales revenue;
In late 1993 : Company started to set up departmental income statements in obtain to see if each department is carrying its fair share of the load.
In early April of 1994, the first departmental income statement were distributed to the management group.
In the first quarter of 1994 television department had shown a gross margin that was much too small to cover the department’s operating expenses. As shown in following income …show more content…
In addition, there are still unavoidable/fixed operating expenses $ 132.8005,00 that still be carried on Import Distributor Inc as a whole company.
3. Please notice that the company uses gross margin income statement rather than contribution margin, means there are fixed cost that is still must be carried even though the Television Department is closing down.
4. For above reasons, it is recommended not to eliminate the Television Department.
5. The company uses sales based cost system to divide some of operating expense. So, every cost occur will divide by the percentage of sales dollar to total sales. The example of these costs are the administrative cost or delivery cost.
6. The company should start to apply activity based costing since it provides better understanding which product consume more operating cost. Look back at delivery cost, it uses product sales as a basic, but actually there is no guarantee that the higher sales will cause higher cost delivery since the products may delivered to few stores only.
7. I believe that this first quarter report does not reflect the sales for all year as every business has up and down period during. For instance, In USA at last quarter period (Christmas period) for the consumer product the sales will be very high and usually on January and February the sales quite low.
8. In addition, shutting down the