Responsibility segmentation analysis

Question

Case Scenario:

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.

		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)