Exercise 11-2 Segmented Income Statement [LO1]

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	$	2,020,000
Variable expenses		788,100
Contribution margin		1,231,900
Fixed expenses		1,309,000
Operating loss	$	(77,100	)

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	$	602,000		$	801,000		$	617,000
Variable expenses as a percentage of sales		50	%		30	%		40	%
Traceable fixed expenses	$	322,000		$	532,000		$	302,000

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 15% if monthly advertising is increased by $27,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising? (Yes or No)

Total Company Geographic Market Central South North