Chapter 7 Homework Question 4

Territory and Product Profitability Analysis Coast to Coast Surfboards Inc. manufactures and sells two styles of surfboards, Atlantic Wave and Pacific Pounder. These surfboards are sold in two regions, East Coast and West Coast. Information about the two surfboards is as follows: Atlantic Wave Pacific Pounder $250 Sales price $300 (120) Variable cost of goods sold per unit Manufacturing margin per unit Variable selling expense per unit (111) $189 $130 (60) (129) HA Contribution margin per unit $60 $70 The sales unit volume for the territories and products for the period is as follows: East Coast West Coast Atlantic Wave 3,420 1,710 Pacific Pounder 0 1,710 a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if required. Coast to Coast Surfboards Inc. Contribution Margin by Territory East Coast West Coast Sales Variable cost of goods sold Manufacturing margin Variable selling expenses Contribution margin Contribution margin ratio Feedback b. What advice would you give to the management of Coast to Coast Surfboards regarding the relative profitability of the two territories? The total contribution margin is slightly lower for the East Coast, while the contribution margin ratio is slightly higher for West Coast. This is because East Coast sells only Atlantic Wave, which have a lower contribution margin ratio but a lower a changing the mix of products to the two territories will have much effect. In addition, the variable selling expenses per unit for the Atlantic Wave may be too high. contribution margin per unit. In attempting to improve the company's profitability, it is unlikely that