Question

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

Sales	$	2,010,000
Variable expenses		796,120
Contribution margin		1,213,880
Fixed expenses		1,307,000
Operating loss	$	(93,120	)

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:

	Geographic Market
	South			Central			North
Sales	$	601,000		$	800,000		$	609,000
Variable expenses as a percentage of sales		52	%		30	%		40	%
Traceable fixed expenses	$	321,000		$	531,000		$	301,000

Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.

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

Sales	$	2,010,000
Variable expenses		796,120
Contribution margin		1,213,880
Fixed expenses		1,307,000
Operating loss	$	(93,120	)

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:

	Geographic Market
	South			Central			North
Sales	$	601,000		$	800,000		$	609,000
Variable expenses as a percentage of sales		52	%		30	%		40	%
Traceable fixed expenses	$	321,000		$	531,000		$	301,000

Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.

		Geographic Market
	Total Company	South	Central	North
	$0	0	0	0
	$0	$0	$0	$0

2-a. The company’s sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $26,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising?

• Yes

• No

2-a. The company’s sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $26,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising?

• Yes

• No

Answer 1