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 $ 1,500,000
Variable expenses 588,000
Contribution margin 912,000
Fixed expenses 945,000
Net operating loss $ (33,000)
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 $ 400,000 $ 600,000 $ 500,000
Variable expenses as a percentage of sales 52 % 30 % 40 %
Traceable fixed expenses $ 240,000 $ 330,000 $ 200,000
Required:
1. Prepare a contribution format income statement segmented by geographic market, as desired by the president. (Input all amounts as positive values except losses which should be indicated by a minus sign.
Geographic Market
Total
Company South Central North
$ $ $ $
$ $ $
$
2a. The company%u2019s sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising were increased by $25,000. Calculate the incremental net operating income.
Incremental net operating income $
2b. Would you recommend the increased advertising?