Question

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: $2,190,000 Sales Variable 887,520 expenses Contribution Fixed expenses 1,343,000 Operating loss $ (40,520) 1,302,480 margin 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 North Central 619,000 $818,000 $753,000 South Sales Variable expenses as a 50% 32% 42% percentage of sales Traceable fixed expenses $350,000 $528,000 319,000 Required: 1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.

Answer 1

Answer:-1)-

Bovine Company
Income Statement (Contribution Format)
		Divisons
	Total Company	North	South	South
Particulars	Amonut	Amonut	Amonut	Amonut
	$	$	$	$
Sales	2190000	619000	818000	753000
Less:- Variable expenses	887520	619000*50%=309500	818000*32%=261760	753000*42%=316260
Contribution Margin	1302480	309500	556240	436740
Less:-Traceble fixed expenses	1197000	350000	528000	319000
Territorial segment margin	105480	-40500	28240	117740
Less:-Common fixed expenses	1343000-1197000=146000
Net opreating income	-40520

2a)-

Incremental Operating Income
Particulars		Amount
		$
Incremental sales	$818000*10%	81800
Contrbution margin ratio 68%	$81800*68%	55624
Incremental contribution margin		55624
Less:- Incremental advertising expenses		44000
Incremental operating income		11624

2b)-Yes, the advertising program should be initiated.