Question
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started