Contribution margin analysis Trans Sport Company sells sporting goods to retailers in three different states—Florida, Georgia, and Tennessee. The following profit analysis by state was prepared by the company:

Florida Georgia Tennessee Revenue $1,125,000 $1,000,000 $1,181,250 Cost of goods sold 562,500 535,000 562,500 Gross profit $ 562,500 $ 465,000 $ 618,750 Selling expenses 365,600 337,500 420,000 Income from operations $ 196,900 $ 127,500 $ 198,750 The following fixed costs have also been provided:

Florida Georgia Tennessee Fixed manufacturing costs $112,500 $225,000 $126,500 Fixed selling expenses 84,375 135,000 113,625 In addition, assume that inventories have been negligible.

Management believes it could increase state sales by 20%, without increasing any of the fixed costs, by spending an additional $42,200 per state on advertising.

1. Prepare a contribution margin by state report for Trans Sport Company.

2. Determine how much state operating profit will be generated for an additional $42,200 per state on advertising.

3. Which state will provide the greatest profit return for a $42,200 increase in advertising? Why?

Absorption costing