Bovine Company, a wholesale distributor of umbrellas, has been experiencing loss

Question

Bovine Company, a wholesale distributor of umbrellas, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement: Sales Variable expenses $2,200,000 872,500 Contribution margin 1,327,500 Fixed expenses 1,345,000 Operating loss (17,500) 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 Geographic Market Nenihi Central $620,000 $819,000 $761,000 Sales Variable expenses as a percentage of sales Traceable fixed expenses 52% 30% 40% $360,000 $529,000 $320,000

Explanation / Answer

Total South Central North Sales 2200000 620000 819000 761000 Variable expenses 872500 322400 245700 304400 Contribution margin 1327500 297600 573300 456600 Traceable fixed expenses 1209000 360000 529000 320000 Geographic market segment margin 118500 -62400 44300 136600 Common fixed expenses not traceable to geographic markets 136000 Operating income (loss) -17500 2a Incremental contribution margin 85995 =819000*15%*(1-0.3) Advertising costs 45000 Incremental net operating income 40995 2b Yes

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