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 |
$ |
1,574,000 |
| Variable expenses |
|
668,940 |
|
|
|
| Contribution margin |
|
905,060 |
| Fixed expenses |
|
996,000 |
|
|
|
| Net operating loss |
$ |
(90,940) |
|
|
|
|
|
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 |
$ |
414,000 |
|
$ |
660,000 |
|
$ |
500,000 |
|
| Variable expenses as a percentageof sales |
|
61 |
% |
|
29 |
% |
|
45 |
% |
| Traceable fixed expenses |
$ |
266,000 |
|
$ |
325,000 |
|
$ |
192,000 |
|
| a. |
The company's sales manager believes that sales in the Central geographic market could be increased by 11% if monthly advertising were increased by $28,000. Calculate the incremental net operating income.
|