3. Again, two insights should be brought to the attention of management.
First, the Northern territory has a poor sales mix. Note that the territory
sells very little of the Paks product, which has a high contribution margin
ratio. This poor sales mix accounts for the low overall contribution mar-
gin ratio in the Northern territory mentioned in part (2) above. Second,
the traceable fixed expenses of the Paks product seem very high in rela-
tion to sales. These high fixed expenses may simply mean that the Paks
product is highly leveraged; if so, then an increase in sales of this prod-
uct line would greatly enhance profits in the Northern territory and in
the company as a whole.
Problem 12-19 (30 minutes)
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