Q:

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	$	2,110,000
Variable expenses		915,180
Contribution margin		1,194,820
Fixed expenses		1,327,000
Operating loss	$	(132,180	)

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	$	611,000		$	810,000		$	689,000
Variable expenses as a percentage of sales		60	%		32	%		42	%
Traceable fixed expenses	$	320,000		$	531,000		$	311,000

Required: 1.Prepare a contribution format income statement segmented by geographic market, as requested by the president.

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 $36,000. Calculate the incremental net operating income.

2-b.Would you recommend the increased advertising?

multiple choice

Yes

No