1) What is the process and how I can solve this question please! Bovine Company,

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1)

What is the process and how I can solve this question please!
Bovine Company, a wholesale distributor of DVD's, 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 geographical market. Accordingly, the Accounting Department has developed the following data:

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

2) How do we calculate the solution? also if the company sales manager believes that sale in the Central geog market could increase 15% if monthly advertising were increased by $25,000. Would you recommend the increase advertisement? Show the computation

Explanation / Answer

SEE TO PREPARE AN INCOME STATEMENT DO AS FOLLOWS:

1)List the Sales figure. The is also known as gross revenue.
    This is the total of amount of sales in dollars that the firm has made

2)Deduct Cost of Goods Sold. This includes all costs to make/buy the goods.

3)Calculate Gross Profit. This is Sales less Cost of Goods Sold.

4)Deduct Operating Expenses. These are often divided into Sales related and Office/Administration related. These include items like salaries, advertising, rent, utilities, and depreciation.

5)Calculate Operating Income. This is Gross Profit less Operating Expenses.

6)Add Other Revenue such as interest revenue, and gain on sale.

7)Deduct Other Expenses such as interest expenses, and loss on sale.

8)Deduct Other Expenses such as interest expenses, and loss on sale.

This is an example of a very simple income statement. The income statement of your company may be a little more complex and contain more line items. This statement should serve to give you the general idea of how a profit/loss statement, or income statement works.

2)Solve means you have to find the total profit. SEE in the statement u have calculated the total sales thus calculate the total revenue earned.

Subtract the total cost(fixed + variable ) from total revenue and this is the profit...

See in this particular question Advertisement cost comes under Traceable fixed expenses

increase Traceable fixed expenses by 25000 *12 yearly and increase the sales by 15 % and compute the same as above

XYZ Company Income Statement For the Year Ending Dec 2009 1.Sales $1,000,000 2.Cost of Goods Sold $500,000 3.Gross Profit $500,000 4.Selling & Administrative Exp $250,000 5.Depreciation $80,000 6.Operating Profit(EBIT) $170,000 7.Interest $30,000 8.Earnings Before Taxes $140,000 9.Taxes(.40) $56,000 10.Earnings Available to Common Shareholders $84,000 11.Dividends or Owner Draw $20,000 12.Net Income $64,000

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