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