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 | |
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| Contribution margin | 912,000 | |
| Fixed expenses | 945,000 | |
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| Net operating loss | $ | (33,000) |
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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: |
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Geographic Market |
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| 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 | |||
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| 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.) |
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Geographic Market |
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| Total Company |
South | Central | North | |
| $ | $ | $ | $ | |
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| $ | $ | $ | ||
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| $ | ||||
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| 2a. |
The company%u2019s 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 | $ |
| 2b. | Would you recommend the increased advertising? | ||||
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