Question

1. value: 20.00 points 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 $2,090,000 873,540 Contribution margin Fixed expenses 1,216,460 1,323,000 Operating loss $ (106,540) 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 $609,000 Sales Variable expenses as a percentage of sales Traceable fixed expenses Central $808,000 31% $539,000 North $673,000 41% $309,000 $329,000 Required: 1. Prepare a contribution format income statement segmented by geographic market, as requested by the president. Total Company Geographic Market Central South North

Answer 1

1.
		Geographic Market
	Total company	South	Central	North
Sales	2090000	609000	808000	673000
Variable expenses	873540	347130 [ 609000*57% ]	250480 [ 808000*31% ]	275930 [ 673000*41% ]
Contribution margin	1216460	261870	557520	397070
Traceable fixed expenses	1177000	329000	539000	309000
Geographic market segment margin	39460	(67130)	18520	88070
Common fixed expenses not traceable to products ( 1323000 - 1177000 )	146000
Operating income	(106540)

2-a.
Incremental net operating income = ( Current contribution margin of Cental geographic market * % increase in sales ) - Increase in advertising expense = ( 557520 * 15% ) - 34000	49628

2-b

Answer : Yes

Reason : As it would increase the net operating income by $49,628