Bovine Company, a wholesale distributor of umbrellas, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:
Sales
$
2,070,000
Variable expenses
895,880
Contribution margin
1,174,120
Fixed expenses
1,319,000
Operating loss
$
(144,880
)
In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Accordingly, the Accounting Department has developed the following:
Geographic Market
South
Central
North
Sales
$
607,000
$
806,000
$
657,000
Variable expenses as a percentage of sales
50
%
36
%
46
%
Traceable fixed expenses
$
320,000
$
480,000
$
307,000
Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.
2-a. The company’s sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $32,000. Calculate the incremental net operating income.
Bovine Company, a wholesale distributor of umbrellas, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:
| Sales | $ | 2,070,000 | |
| Variable expenses | 895,880 | ||
| Contribution margin | 1,174,120 | ||
| Fixed expenses | 1,319,000 | ||
| Operating loss | $ | (144,880 | ) |
In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Accordingly, the Accounting Department has developed the following:
| Geographic Market | |||||||||
| South | Central | North | |||||||
| Sales | $ | 607,000 | $ | 806,000 | $ | 657,000 | |||
| Variable expenses as a percentage of sales | 50 | % | 36 | % | 46 | % | |||
| Traceable fixed expenses | $ | 320,000 | $ | 480,000 | $ | 307,000 | |||
Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.
2-a. The company’s sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $32,000. Calculate the incremental net operating income.
Related questions
Wingate Company, a wholesale distributor of electronicequipment, has been experiencing losses for some time, as shown byits most recent monthly contribution format income statement, whichfollows: |
| Sales | $ | 1,624,000 |
| Variableexpenses | 618,260 | |
| Contributionmargin | 1,005,740 | |
| Fixed expenses | 1,106,000 | |
| Net operating income(loss) | $ | (100,260) |
In an effort to isolate the problem, the president has asked foran income statement segmented by division. Accordingly, theAccounting Department has developed the following information: |
Division | |||||||||
| East | Central | West | |||||||
| Sales | $ | 354,000 | $ | 690,000 | $ | 580,000 | |||
| Variable expenses asa percentage of sales | 49 | % | 30 | % | 41 | % | |||
| Traceable fixedexpenses | $ | 268,000 | $ | 323,000 | $ | 206,000 | |||
| Required: |
| 1. | Prepare a contribution format income statement segmented bydivisions, as desired by the president. |
| 2-a. | As a result of a marketing study, the president believes thatsales in the West Division could be increased by 14% if monthlyadvertising in that division were increased by $25,000. Calculatethe incremental net operating income. |
| 2-b. | Would you recommend theincreased advertising? | ||||
|
