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Bovine Company, a wholesale distributor of DVDs, has been experiencing losses for some time, as shown by its most recent monthly contribution format i...

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:

  Sales                                           $1,631,000  

  Variable expenses                        $623,730  

  Contribution margin                      $1,007,270  

  Fixed expenses                            $1,108,000  

  Net operating loss                         $(100,730) 

 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

                                             South       Central                 North

  Sales                                                            $431,000      $640,000            $560,000      

  Variable expenses as a percentage of sales          43%            30%                       44%

  Traceable fixed expenses                                 $265,000     $334,000             $205,000     

Required:

1. Prepare a contribution format income statement segmented by geographic market, as desired by the president.

2-a The company’s sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising were increased by $26,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising?

ATTACHMENTS
q#6.xlsx