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	$400	$350
Variable cost of goods sold per unit	(148)	(161)
Manufacturing margin per unit	$252	$189
Variable selling expense per unit	(172)	(105)
Contribution margin per unit	$80	$84

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

Product	East Coast	West Coast
Atlantic Wave	3,500	1,750
Pacific Pounder	0	1,750

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.

Line Item Description	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	Contribution margin ratio%	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 higherslightly lower

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

slightly higherslightly lower

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

higherlower

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

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 fill in the blank 5 of 5

Atlantic WavePacific Pounder

may be too high.