Thursday, 2 August 2012

Bovine Company, a wholesale distributor of DVDs, has been experiencing losses for some time,

Bovine Company, a wholesale distributor of DVDs, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement below:

  Sales $ 1,500,000   
  Variable expenses 588,000   


  Contribution margin 912,000   
  Fixed expenses 945,000   


  Net operating loss $ (33,000)  





   
In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Accordingly, the Accounting Department has developed the following data:

Geographic Market
South Central North
  Sales $ 400,000 $ 600,000 $ 500,000
  Variable expenses as a percentage of sales 52 % 30 % 40 %
  Traceable fixed expenses $ 240,000 $ 330,000 $ 200,000


Required:
1.
Prepare a contribution format income statement segmented by geographic market, as desired by the president. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Geographic Market
       Total
      Company
       South        Central        North
  Sales correct $ 1,500,000 correct   $ 400,000 correct   $ 600,000 correct   $ 500,000 correct  
  Variable expenses correct 588,000 correct   208,000 correct   180,000 correct   200,000 correct  




  Contribution margin correct 912,000 correct   192,000 correct   420,000 correct   300,000 correct  
  Traceable fixed expenses correct 770,000 correct   240,000 correct   330,000 correct   200,000 correct  




  Geographic market segment margin correct 142,000 correct   $ -48,000 correct   $ 90,000 correct   $ 100,000 correct  






  Common fixed expenses not traceable to geographic markets correct n/r incorrect  

  Net operating income (loss) correct $ n/r incorrect  




2a.
The company’s sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising were increased by $25,000. Calculate the incremental net operating income. (Omit the "$" sign in your response.)

  Incremental net operating income $ n/r incorrect  

2b. Would you recommend the increased advertising?
Yes correct