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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
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 $ $
Variable cost of goods sold per unit
Manufacturing margin per unit $ $
Variable selling expense per unit
Contribution margin per unit $ $
The sales unit volume for the sales territories and products for the period is as follows:
Product East Coast West Coast
Atlantic Wave
Pacific Pounder
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 of
slightly lower
for the East Coast, while the contribution margin ratio is fill in the blank of
slightly higher
for West Coast. This is because East Coast sells only Atlantic Wave, which have a fill in the blank of
lower
contribution margin per unit. In attempting to improve the companys profitability, it is fill in the blank of
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 of
Atlantic Wave
may be too high.
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