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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000

Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 792,000

Contribution margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,000

Fixed expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,305,000

Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (97,000)

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:

Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.
2. The company€™s sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising is increased by $25,000. Would you recommend the increased advertising? Show computations to support your answer.

Transcribed Image Text:

Geographic Market South Central North Sales .... $600,000 $800,000 $600,000 Variable expenses as a percentage of sales... Traceable fixed expenses.. ....... 52% 30% 40% $300,000 $320,000 $530,000