Territory and Product Profitability Analysis

Pipeline 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:

Line Item Description Atlantic Wave Pacific Pounder

Sales price $$250$ $$200$

Variable cost of goods sold per unit $(93)(96)$

Manufacturing margin per unit $$157$ $$104$

Variable selling expense per unit $(107)(48)$

Contribution margin per unit $$50$ $$56$

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

Product East Coast West Coast

Atlantic Wave $2,8201,410$

Pacific Pounder $01,410$

Question Content Area

a$.$ Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory. Round contribution margin ratio answers to two decimal places.

Pipeline Surfboards Inc.

Contribution Margin by Territory

Line Item Description East Coast West Coast

Sales

Variable cost of goods sold

Manufacturing margin

Variable selling expenses

Contribution margin

Contribution margin ratio

Question Content Area

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

The total contribution margin is fill in the blank $1$ of $5$

slightly lower

for the East Coast, while the contribution margin ratio is fill in the blank $2$ of $5$

slightly higher

for West Coast. This is because East Coast sells only Atlantic Wave, which have a fill in the blank $3$ of $5$

lower

contribution margin per unit. In attempting to improve the company$$s profitability, it is fill in the blank $4$ of $5$

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 fill in the blank $5$ of $5$

Atlantic Wave

may be too high.