Firstly, the locations of the two segments identified by General Mills are different. Impulse locations mainly located in cafeterias on college campuses and military bases. Another segment is focusing on the yogurt shops and restaurants.
The sales of both segments are different due to the locations. Sales revenue of impulse locations is much more than yogurt shops. Thus, General Mills sent more Colombo frozen yogurts to the impulse locations. Although the expenses of impulse locations are high, General Mills still can make more profit from this segment as the sales revenue is higher.
According to General Mill’s logic, yogurt shops and restaurants ...view middle of the document...
Net income per case for yogurt shops
$1,761,000/300,000 cases = $5.87
Total net income per case
$0.595 + $5.87 = $6.465
Based on the analysis above, since the net income per case is higher in yogurt shops segment, General Mills should focus more on yogurt shops and restaurants. Furthermore, General Mills should change their costing system to activity-based costing system as this system records all the activities and is more accurate. In the original income statement, General Mills just assumed all the cases have the same shipping costs, merchandising costs and selling, general and administrative expenses for both segments but in fact they are not the same. Besides, General Mills calculated the same net income per cases in both segments. Those data are not accurate as it just based on the number of units sales to make calculation.
There are few reasons why activity-based costing system has relatively slow take-up rate in many countries although it has lots of advantages. First...