Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Territory and Product Profitability Analysis Coast to Coast Surfboards Inc. manufactures and sells two styles of surfboards, Atlantic Wave and Pacific Pounder. These surfboards are

Territory and Product Profitability Analysis

Coast to Coast Surfboards Inc. manufactures and sells two styles of surfboards, Atlantic Wave and Pacific Pounder. These surfboards are sold in two regions, East Coast and West Coast. Information about the two surfboards is as follows:

Atlantic Wave Pacific Pounder
Sales price $300 $250
Variable cost of goods sold per unit (111) (118)
Manufacturing margin per unit $189 $132
Variable selling expense per unit (135) (62)
Contribution margin per unit $54 $70

The sales unit volume for the territories and products for the period is as follows:

East Coast West Coast
Atlantic Wave 3,080 1,540
Pacific Pounder 0 1,540

a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if required.

Coast to Coast Surfboards Inc.
Contribution Margin by Territory
East Coast West Coast
Sales $924,000 fill in the blank
Variable cost of goods sold $341,880 fill in the blank
Manufacturing margin $582,120 fill in the blank
Variable selling expenses $415,800 fill in the blank
Contribution margin $166,320 fill in the blank
Contribution margin ratio 18% fill in the blank

b. What advice would you give to the management of Coast to Coast Surfboards regarding the relative profitability of the two territories?

The total contribution margin is slightly lower for the East Coast, while the contribution margin ratio is slightly higher for West Coast. This is because East Coast sells only Atlantic Wave, which have a lower contribution margin ratio but a lower contribution margin per unit. In attempting to improve the companys profitability, it is unlikely that changing the mix of products to the two territories will have much effect. In addition, the variable selling expenses per unit for the Atlantic Wave may be too high.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Acca Paper 3.1 Audit And Assurance

Authors: N/a

1st Edition

075172680X, 978-0751726800

More Books

Students also viewed these Accounting questions