Part 4 Tennis company, a distributor of Tennis Rackets, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement below: Sales Variable expenses Contribution margin Fixed expenses Net operating loss $ 1,505,000 $ 581,500 $ 923,500 930,000 $ (6,500) In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Below is data by geographic market: Sales South $ Central Variable expenses as a percentage of sales Direct Fixed expenses 400,000 $ 50% 190,000 All other fixed costs are assumed unallocated common fixed costs North 450,000 605,000 $500,000 30% 40% 260,000 Required: 1. Prepare a segmented income statement segmented by geographical market and total for the company in good form. Use cell referencing of the information above to develop an answer to the following questions. 2. Do you recommend that the company drop one of the geographical markets based only on your calculations in #1? Why? What will be the impact on income of the company as a whole if it drops this geographical market? Be specific about the dollar amount change. 3. The company's sales manager believes that sales in the South geographical market could be increased by Would you recommend the increased advertising? Why? Develop a revised South market segmented income statement down to the computation of geographic margin. Solution: Prepare the solution below in the order listed for required. 20% Monthly Advertising for the central market would be increased by $40,000