The Euro Company is a wholesaler who sells its products to retailers throughout Europe. Euro’s headquarters is in Brussels. The company has adopted a regional structure with each region consisting of 3-5 sales territories. Each region has its own regional office and a warehouse which distributes the goods directly to the customers. Each sales territory also has an office where the marketing staff are located. The Scandinavian region consists of three sales territories with offices located in Stockholm, Oslo and Helsinki. The budgeted results for the next quarter are as follows:
|
Stockholm |
Oslo |
Helsinki |
Total |
|
|
(£000’s) |
(£000’s) |
(£000’s) |
(£000’s) |
|
|
Cost of goods sold |
800 |
850 |
1000 |
2650 |
|
Salespersons salaries |
160 |
200 |
240 |
600 |
|
Sales office rent |
60 |
90 |
120 |
270 |
|
Depreciation of sales office equipment |
20 |
30 |
40 |
90 |
|
Apportionment of warehouse rent |
24 |
24 |
24 |
72 |
|
Depreciation of warehouse equipment |
20 |
16 |
22 |
58 |
|
Regional and headquarters costs |
||||
|
Cause-and-effect allocations |
120 |
152 |
186 |
458 |
|
Arbitrary apportionments |
360 |
400 |
340 |
1100 |
|
Total costs assigned to each location |
1564 |
1762 |
1972 |
5298 |
|
Reported profit/(loss) |
236 |
238 |
(272) |
202 |
|
Sales |
1800 |
2000 |
1700 |
5500 |
Assuming that the above results are likely to be typical of future quarterly performance should the Helsinki territory be discontinued?