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Brabant NV of the Netherlands is a wholesale distributor of Dutch cheeses that it sells throughout the European Union. Unfortunately, the companys profits have been declining, which has caused considerable concern. To help understand the condition of the company, the managing director of the company has requested that the monthly income statement be segmented by sales territory. Accordingly, the companys accounting department has prepared the following statement for March, the more recent month. (The Dutch currency is the euro, which is designated by .)

	Sales Territory
	Southern Europe	Middle Europe	Northern Europe
Sales		300,000			800,000			700,000
Territorial expenses (traceable):
Cost of goods sold		93,000			240,000			315,000
Salaries		54,000			56,000			112,000
Insurance		9,000			16,000			14,000
Advertising		105,000			240,000			245,000
Depreciation		21,000			32,000			28,000
Shipping		15,000			32,000			42,000
Total territorial expenses		297,000			616,000			756,000
Territorial income (loss) before corporate expenses		3,000			184,000			(56,000	)
Corporate expenses:
Advertising (general)		15,000			40,000			35,000
Selling and administrative		20,000			20,000			20,000
Total corporate expenses		35,000			60,000			55,000
Operating income (loss)		(32,000	)		124,000			(111,000	)

Cost of goods sold, and shipping expenses are both variable; other costs are all fixed. Brabant NV purchases cheeses at auction and from farmers cooperatives, and it distributes them in the three territories shown in the statement above. Each of the three sales territories has its own manager and sales staff. The cheeses vary widely in profitability; some have a high margin, and some have a low margin. (Certain cheeses, after having been aged for long periods, are the most expensive and carry the highest margins.)

Required:

1. List any disadvantages or weaknesses of the statement format listed above.

2. Explain the base that is apparently being used to allocate the corporate expenses to the territories. What are the advantages and disadvantages of using these allocations?

3. Prepare a new segmented contribution format income statement for May. Show a total column as well as data for each territory. Include percentages on your statement for all columns. Carry percentages to one decimal place

4. Analyze the statement you prepared in (3) above. What points that might help to improve the companys performance would you bring to managements attention?

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