Bovine Company, a wholesale distributor of DVDs, has been experiencing losses fo

Question

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:

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

Prepare a contribution format income statement segmented by geographic market, as desired by the president.

The company’s sales manager believes that sales in the Central geographic market could be increased by 14% if monthly advertising were increased by $25,000. Calculate the incremental net operating income.

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Hint #1

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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:

Explanation / Answer

1. INCOME STATEMENT

GEOGRAPHIC MARKET

Particulars South Central North

Sales 357000 670000 530000

less: variable expenses (203490) (227800) (196100)

Contribution 153510 442200 333900

less: fixed expenses (263000) (324000) (208000)

Net operating income (109490) 118200 125900

2a.

Particulars Central

Sales 763800

less: variable expenses (259692)

Contribution 504108

less: fixed expenses (349000)

Operating income 155108.

2b. yes, advertising expenses is rewcommended. because it is selling and distribution expenses. it comes under fixed expenses.

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