Sales Territory and Salesperson Profitability Analysis

Havasu Off-Road Inc. manufactures and sells a variety of commercial vehicles in the Northeast and Southwest regions. There are two salespersons assigned to each territory. Higher commission rates go to the most experienced salespersons. The following sales statistics are available for each salesperson:

	Northeast				Southwest
	Rene		Steve		Colleen		Paul
Average per unit:
Sales price	$15,500		$16,000		$14,000		$18,000
Variable cost of goods sold	$9,300		$8,000		$8,400		$9,000
Commission rate	8%		12%		10%		8%
Units sold	36		24		40		60
Manufacturing margin ratio	40%		50%		40%		50%

a. 1. Prepare a contribution margin by salesperson report. Calculate the contribution margin ratio for each salesperson.

Havasu Off-Road Inc.
Contribution Margin by Salesperson
	Rene	Steve	Colleen	Paul
Sales	$	$	$	$
Variable cost of goods sold
Manufacturing margin	$	$	$	$
Variable commission expense
Contribution margin	$	$	$	$
Contribution margin ratio	%	%	%	%

a. 2. Interpret the report.

Paul earns the highest contribution margin and has the highest contribution margin ratio. This is because he sells the most units, has a low commission rate, and sells a product mix with a high manufacturing margin. Steve also sells products with a high average manufacturing margin but at a high commission rate. Colleen has the poorest contribution margin ratio among the four salespersons. Although Rene has a high variable cost of goods sold and also sells products with a low average sales price per unit, she has the second highest total contribution margin.

b. 1. Prepare a contribution margin by territory report. Calculate the contribution margin for each territory as a percent, rounded to one decimal place.

Havasu Off-Road Inc.
Contribution Margin by Territory
	Northeast	Southwest
Sales	$	$
Variable cost of goods sold
Manufacturing margin	$	$
Variable commission expense
Contribution margin	$	$
Contribution margin ratio	%	%

b. 2. Interpret the report.

The Southwest Region has $ more sales and $ more contribution margin. In the Southwest Region, the salesperson with the highest sales unit volume, has the highest contribution margin ratio. The Southwest Region has the highest performance, even though it also has the salesperson with the lowest contribution margin and contribution margin ratio. The Northeast Region contribution margin is less than the Southwest Region because of the outstanding performance of Paul .