District A District B District C Sales @ $20 $300,000 $500,000 $200,000 COGS @ $9 $135,000 $225,000 $90,000 GM $165,000 $275,000 $110,000 Freight out $11,250 $25,000 $15,000 Warehouse rent $24,000 $40,000 $16,000 sales commission $18,000 $30,000 $12,000 Sales salaries $12,000 $10,000 $8,000 District advertising $20,000 $25,000 $30,000 National advertising $34,500 $57,500 $23,000 Ttl Mkt expense $119,750 $187,500 $104,000 Administrative expenses District management salaries $12,000 $15,000 $13,000 Central office expenses $30,000 $50,000 $20,000 Total $42,000 $65,000 $33,000 NI $3,250 $22,500 $(27,000) The company sells a single product. The product is sold in three district. a) The S&A offices are centrally located, same distance form each other. b) Each district specifies on the sales order what freight method is to be used. All goods are shipped from a central warehouse. Freight is variable cost and it is traceable to the district; differences in amounts above are reflective of the different freight methods used. c) All salespersons are paid a base salary of $500 per month, plus a commission of 6% of sales. There are 24 salespersons in District A, 20 in District B and 16 in District C. d) Each district manager must arrange his or her district advertising program. The national advertising is provided by the central office. e) The variable costs of processing order, which have been included in the "central office administrative expenses" above , amount $25,000. During March, District A had 3,000 orders, District B had 1,500 orders, and District C had 500 orders. The remainder of the "Central office administrative expense" are fixed and relate to general administrative assistance provided all parts of the organization. F) The warehouse contains 160,000 square feet of storage space. District A uses 60,000 square feet, District B uses 80,000 square feet, District C uses 20,000 square feet. Assume this is considered a traceable cost. Required: 1. Income statement to be redone using the contribution segment format below. Sales Less variable costs Variable COGS Other variable expenses Contribution margin Less direct fixed expenses Division segment margin Less common fixed expenses Operating income 2. Compute the contribution margin per order for each district. What problems does this computation suggest? 3. The manager of district B would like to spend extra $25,000 next month in a special promotional campaign. If sales increase by $100,00 as a result, would the expenditure be justified? No additional warehouse space would be required