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)		(161)
Manufacturing margin per unit	$252		$189
Variable selling expense per unit	(180)		(105)
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	3,460		1,730
Pacific Pounder	0		1,730

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
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable selling expenses	- Select -	- Select -
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable selling expenses	- Select -	- Select -
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable selling expenses	$- Select -	$- Select -
Contribution margin ratio	fill in the blank 99300e00300707e_16%	fill in the blank 99300e00300707e_17%

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 higherslightly lower

for the East Coast, while the contribution margin ratio is

slightly higherslightly lower

for West Coast. This is because East Coast sells only Atlantic Wave, which have a

higherlower

contribution margin ratio but a

higherlower

contribution margin per unit. In attempting to improve the companys profitability, it is

likelyunlikely

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 WavePacific Pounder

may be too high.