Question

Ferntree Experiences has two operating divisions, Winery and Restaurant. The two divisions have a marketing agreement to provide incentives to customers. The Winery division offers coupons good for meals at the restaurant and the restaurant division offers coupons good for wine tasting and purchases. Annual profits are $12 million. The two divisions meet the requirements for segment disclosures.

Before the transactions are considered, revenues and costs (in thousands of dollars) for the two divisions are as follows.

	Winery	Restaurant
Revenue	$30,000	$15,000
Cost	?	?
Profit	?	?

After adjusting appropriately for the effect of the marketing agreement, the revenues and costs are as follows.

	Winery	Restaurant
Revenue	?	?
Costs	?	$12,800
Profit	$9,400	?

The value of the coupons issued by the Restaurant Division was double the value of the coupons issued by the Winery Division.

What was the value of the coupons issued by the Winery Division? What was the value of the coupons issued by the Restaurant Division?

Answer 1

						Given in question
	Start from Annual Profit=12000
				$'000
	After Adjustment
		Winery	Restaurant	Total
	Revenue	29,600	15,400	45,000
		(20200+9400)	(12800 +2600)
	Cost	20,200	12,800
	Profit	9,400	2,600	12,000
			(12000-9400)
	Before adjustment
		Winery	Restaurant	Total
	Revenue	30,000	15,000	45,000
	Cost	20,200	12,800
		(30000-9800)
	Profit	9,800	2,200	12,000
		(12000-2200)	(15000-12800)
	Difference in Profit	400	(400)
		(9800-9400)	(2200-2600)
		Winery	Restaurant
	Total Coupon Issued	400
	Ratio of Coupon issue	2	1
	Value of Coupon issued	267	133
		(400 X 2/3)	(400 X 1/3)