Question
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:
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 | $ | 2,100,000 | |
Variable expenses | 868,900 | ||
Contribution margin | 1,231,100 | ||
Fixed expenses | 1,325,000 | ||
Operating loss | $ | (93,900 | ) |
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 | $ | 610,000 | $ | 809,000 | $ | 681,000 | |||
Variable expenses as a percentage of sales | 58 | % | 30 | % | 40 | % | |||
Traceable fixed expenses | $ | 330,000 | $ | 540,000 | $ | 310,000 | |||
Required: 1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.
2-a. The companys sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $35,000. Calculate the incremental net operating income.
2-b. Would you recommend the increased advertising?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started