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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 Variable expenses Contribution margin Fixed expenses Operating loss $1,000,000 396,000 604,000 652,000 $ (48,000) 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: Sales Variable expenses as a percentage of sales Traceable fixed expenses Geographic Market South Central North $300,000 $400,000 $300,000 52% 30% 40% $160,000 $265,000 $150,000 Required: 1. Prepare a contribution format income statement segmented by geographic market, as requested by the president. Total Company Geographic Market Central South North 2-a. The company's sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising is increased by $13,000. Calculate the incremental net operating income. Incremental net operating income 2-b. Would you recommend the increased advertising? Yes
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