Muscle bound co. sells home exercise equipment. The company has two sales territ
ID: 2547077 • Letter: M
Question
Muscle bound co. sells home exercise equipment. The company has two sales territories, Eastern and Western. Two products are sold in each territory: Fastrak (a Nordic ski stimulator) and Row Master (a stationary rowing machine).
During January, the following data are reported for the eastern territory.
Common fixed costs in the Eastern Territory amounted to $120,000 during the month. During January, the Western Territory reported total sales of $600,000, variable costs of $270,000, and a responsibility margin of $200,000. Muscle bound also incurred $180,000 of common fixed costs that were not traceable to either sales territory.
In addition to being profit centers, each territory is also evaluated as an investment center. Average assets utilized by the Eastern and Western territories amount to $14,000,000 and $12,000,000 respectively.
A. Prepare the January income statement for the Eastern territory by product line. Include columns showing percentages as well as dollar amounts.
B. Prepare the January income statement for the company showing profits by sales territories. Conclude your statement with income from operations for the company and with responsibility margins for two territories. Show percentages as well as dollar amounts.
C. Compute the rate of return on average assets earned in each sales territory during the month of January.
D. In part A, your income statement for the eastern territory included $120,000 in common fixed costs. What happened to these common fixed costs in the responsibility income statement shown in part B?
E. The manager of the eastern territory is authorized to spend an additional $50,000 per month to advertise one of the products. On the basis of past experience, the manager estimates that additional advertising will increase the sales of either product by $120,000. On which product should the manager focus this advertising campaign? Explain.
F. Top management is considering investing several million dollars to expand operations in one of its two sales territories. The expansion would increase the traceable fixed costs to the expanded territory in proportion to its increase in sales. Which territory would be the best candidate for this investment? Explain.
FasTrak RowMaster Sales.............................................. $600,000 $750,000 Contribution margin ratios.......... 55% 40% Traceable fixed costs................. $80,000 $150,000Explanation / Answer
A.
B.
C.
D.
The $120,000 common fixed costs from the statement in A, has been inclused in traceable fixed costs for Eastern division, as these are not traceable to the product lines but are traceable to the territory.
E.
Since the contribution margin from Fastrack is higher than RowMaster , the manager should focus on Fastrack.
F.
Since the net operating margin for Western territory at 33% is higher than for Easter territory at 21%, the management shall invest in the Western Terotiry.
Income Statement for Eastern Territory - by product line FasTrack Rowmeter Total Total % Total % Total % Sales 600000 100% 750000 100% 1350000 100% Variable costs 270000 45% 450000 60% 720000 53% Contribution margin 330000 55% 300000 40% 630000 47% Traceable fixed costs 80000 13% 150000 20% 230000 17% Tracebale net operating income 250000 42% 150000 20% 400000 30% Common fixed costs 120000 9% Net operating income 280000 21%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.