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	$238		$171
Variable cost of goods sold per unit	94		94
Manufacturing margin per unit	$144		$77
Variable selling expense per unit	128		66
Contribution margin per unit	$16		$11

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

	East Coast		West Coast
Atlantic Wave	30,000		20,000
Pacific Pounder	0		20,000

a. Prepare a contribution margin by sales territory report. Calculate 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	$	$
Variable cost of goods sold
Manufacturing margin	$	$
Variable selling expenses
Contribution margin	$	$
Contribution margin ratio	%	%

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

The East Coast's total contribution margin is higher and the contribution margin ratio is higher when compared to the West Coast. This, in part, is explained by the single board style for the East Coast as compared to the two styles available in the West Coast. Taking a closer look, the Atlantic Wave's manufacturing margin per unit is $ while the Pacific Pounder's is $. And the Atlantic Wave's variable selling expense per unit is $ while the Pacific Pounder's is $.

With an eye on improving profitability, modifying the product mix within the two territories would be ideal . Additionally, the company should review the . The could shed light on manufacturing inefficiencies. Also, a review of variable selling expense per unit could also help with profitability.