Question;ACC 604;FINAL EXAM PART B;Pots and;Pans Distributors, Inc. (P&P) is the distribution company and subsidiary of;Cookware Manufacturing;Company. P&P buys its pots and pans;from Cookware, its parent company, and markets them through its three regional sales;divisions in North America, Asia and Europe.;John Greer;the president of P&P has just received the divisional income and product;reports (attached), and is very;disturbed by the very low (1%) profit margin of the company overall, especially;the loss sustained by the European division. His request to Cookware to reduce;transfer prices has been rejected. He;comes to you, a consultant, for help and advice.;Upon;interviewing company personnel, you learn that P & P does not prepare operating;budgets with which to plan and control future operations and measure the;performance of its managers. Division managers are paid a fixed salary plus a;bonus based upon increases in total sales revenue over the previous year. You;also learn in your interviews that the equipment used by the European Division;has no alternative use and no resale value.;Required;Write your answers to all questions in Word, and for questions 2 through 6;show your;calculations in a neat, orderly fashion. Be sure to indicate the question;number;with each;answer.;1. After analyzing the Divisional Income;Statement and the Product report, write a formal memo toP & P's president;in which you refer to specific percentage differences to identify possible;causes for the poor performance of the European Division. Then, provide a;bulleted listing of possible strategies to be considered with respect to;product selling price, product-mix, planning and control, manager incentives;and specific cost-saving measures.;(Be sure to;review the facts carefully so that you address all those that are relevant.);2. Based on its current contribution margin;ratio, how much in ADDITIONAL sales must the European Division achieve in order to at least;cover its fixed costs and break even?;3. How much in ADDITIONAL sales must it achieve;in order to achieve a SEGMENT MARGIN of $25,000;4. If;the European Division can increase its sales by 10%, what SEGMENT MARGIN will it achieve, assuming no change in contribution margin;ratio or in fixed expenses?;5. If;the European Division cannot make sufficient changes to eliminate losses and;start showing a positive segment margin;should it be discontinued? Explain why or why not by showing the contribution margin that would be lost vs. the;avoidable fixed costs that would be saved.;6. A;Russian company has offered to buy 50,000 pans from the European Division at a;special price of $3.50 each. No sales;commission would be involved. Assuming Cookwear is unwilling to reduce its prices to P & P, should the;European Division accept the offer? Explain why or why not.
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