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. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Geographic Market

The company’s sales manager believes that sales in the Central geographic market could be increased by 14% if monthly advertising were increased by $20,000. Calculate the incremental net operating income.

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

Solution:-

1. Statement Showing income statement segmented by geographic market

2A. Statement Showing the incremental net operating income of Central geographic market

Incremental Sales (660000*14/100)

Note;- Incremental Advertising Expenses are relevant Expenses, So they have to be deducted while taking decision rather to advertise or not. Relevant Expenses are the Expenses which affect our decision.

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Particulars Total Company South Central North A. Sales (given) 1586000 415000 660000 510000 B. Variable Expenses ( as per percentage of sales given in question) 704100 249600 204600 249900 C. Contribution (A-B) 881900 164400 455400 260100 D. Traceable Fixed Expenses 795000 270000 321000 204000 E. Non Traceable Fixed Expenses (Divided in the ratio of sales as per activity based costing) 175000 45901.6 72824.7 56273.6 F. Net operating income/ (loss)[C-D-E] -88100 -150501.6 61575.2 -173.6

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