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 $$400$ $$350$

Variable cost of goods sold per unit $(148)(168)$

Manufacturing margin per unit $$252$ $$182$

Variable selling expense per unit $(180)(98)$

Contribution margin per unit $$72$ $$84$

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

East Coast West Coast

Atlantic Wave $3,6001,800$

Pacific Pounder $01,800$

Question Content Area

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

$Sales

$Sales

Variable cost of goods sold

Variable cost of goods sold

Variable cost of goods sold

Manufacturing margin

$Manufacturing margin

$Manufacturing margin

Variable selling expenses

Variable selling expenses

Variable selling expenses

Contribution margin

$Contribution margin

$Contribution margin

Contribution margin ratio fill in the blank d$82$e$11$f$57$fd$3043\_16$

$\%$ fill in the blank d$82$e$11$f$57$fd$3043\_17$

$\%$

Feedback Area

Feedback

a$.$ To recast the contribution margin data by sales territory report, multiply the sales volume by each per unit amount. To calculate the contribution margin ratio, divide the contribution margin by sales.

Question Content Area

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 company$$s 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.