? erto.mheducation.com him tpx?--0.3212982952929561 7_1523sssss2501 Bovine Compa

ID: 2519132 • Letter: #

Question

? erto.mheducation.com him tpx?--0.3212982952929561 7_1523sssss2501 Bovine Company, a wholesale distributor of umbrellas, has been experiencing lesses for some time,as shown by its most recent monthly contribution format income stabement $2,090 000 873.540 Varable expenses Contribution magin1.216,460 1.323,000 Operating losss S (106,540 In an efflort to isclate the problem, the president has asked for an inc ome ststoment segmented by geographic market Accordingy. the Accouning Depatment has developes the felowing Geog aphe North $009,000$808.000 S673,000 Variable experges as a percentage of salers Traceable foed expenses 57% 31% 41% 329,000 $539000 $309,000 Required a consibution format income statement segmented by geographic maket, as sequested by the president South North 2a. The company's sales manager belbeves hat sales in the Centol geographc market coid be increased by 15% operating income more, ad onseg ncreased by S34 000 Calculate te 2 b. Woukd you recommend the ncreased advertaing? O No

Explanation / Answer

Answer

Income Statement

Total

South

Central

North

Sales

2,090,000

609,000

808,000

673,000

Variable Cost

873,540

347,130

250,480

275,930

Contribution Margin

1,216,460

261,870

557,520

397,070

Fixed Expenses

Traceable Fixed Expenses

1,177,000

329,000

539,000

309,000

Untraceable Fixed Expenses

146,000

Net Operating Income (Loss)

(106,540)

(67,130)

18,520

88,070

Increase in Sales = (808,000 * 15%)

= $121,200

Increase in Net Operating Income = Increase in Sales – Increase in Variable Expenses – Increase in Advertisement Expenses

= 121,200 – (31% * 121,200) – 34,000

Increase in Net Operating Income = $49,628

Yes, it is recommended to Increase Advertisement as it will lead to Increase in Net Operating Income by $49,628