Bovine Company a wholesale distributor of umbrellas has been

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 $2,100,000 868,900 Contribution margin 1,231,100 Fixed expenses 1,325,000 Operating loss S (93,900) 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 South $610,000 $809,000 $681.000 Sales Variable expenses as a percentage of sales Traceable fixed expenses 58% 30% $330,000 $540,000 $310,000 1. Prepare a contribution format income statement segmented by geographic market, as requested by the Geographic Market Total South Central North 0 $ 0

Solution

Contribution Margin Income Statement Total South Central North sales revenue 2100000 610000 809,000 681000 Less: Variable expense 868900 353800 242700 272400 Contribution 1231100 256200 566300 408600 Less: Traceable Fixed cost 1,180,000 330000 540000 310000 Segment margin 51,100 -73,800 26,300 98,600 Lless:; Common Fixed cost 145000 Net Income -93,900 Req 2-a: Increased sale of Central Region (809000*10%) 80900 Contribution margin ratatio 30% Increased contribution margin (80900*30%) 24270 Less: Incremental advertisement expense 35000 Incremental loss -10730 Req 2-b: No It is not recommended