Question

Territory and Product Profitability Analysis

Coast to Coast Surfboards Inc. manufactures and sells two styles of surfboards, Atlantic Wave and Pacific Pounder. These surfboards are sold in two regions, East Coast and West Coast. Information about the two surfboards is as follows:

	Atlantic Wave		Pacific Pounder
Sales price	$267		$189
Variable cost of goods sold per unit	105		105
Manufacturing margin per unit	$162		$84
Variable selling expense per unit	144		72
Contribution margin per unit	$18		$12

The sales unit volume for the territories and products for the period is as follows:

	East Coast		West Coast
Atlantic Wave	30,000		20,000
Pacific Pounder	0		20,000

a. Prepare a contribution margin by sales territory report. Calculate the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if required.

Coast to Coast Surfboards Inc.
Contribution Margin by Territory
	East Coast	West Coast
	$	$
	$	$
	$	$
Contribution margin ratio	%	%

b. What advice would you give to the management of Coast to Coast Surfboards regarding the relative profitability of the two territories?

The East Coast's total contribution margin is   and the contribution margin ratio is   when compared to the West Coast. This, in part, is explained by the single board style for the East Coast as compared to the two styles available in the West Coast. Taking a closer look, the Atlantic Wave's manufacturing margin per unit is $ while the Pacific Pounder's is $. And the Atlantic Wave's variable selling expense per unit is $ while the Pacific Pounder's is $.

With an eye on improving profitability, modifying the product mix within the two territories would be  . Additionally, the company should review the  . The   could shed light on manufacturing inefficiencies. Also, a review of   variable selling expense per unit could also help with profitability.

Answer 1

	Coast to Coast surfboards Inc
Answer	Contribution Margin by Territory
	Details	East Coast				West Coast
		Units	Rate	Total		Units	Rate	Total
	Sales
	Atlantic Wave	30000	$          267	80,10,000		20000	$            267	$        53,40,000
	Pacific Pounder					20000	$            189	$        37,80,000
	Total Sales	30000		80,10,000		40000		$        91,20,000
	Variable Cost
	Atlantic Wave	30000	$          105	31,50,000		20000	$            105	$        21,00,000
	Pacific Pounder					20000	$            105	$        21,00,000
	Total Variable cost	30000		31,50,000		40000		$        42,00,000
	Contribution Margin	30000	$          162	48,60,000		40000	$            123	$        49,20,000
	Contribution Margin Ratio			60.67%				53.95%
	(Contribution/Sales)
	East Coast Contribution is lower and the contribution margin ratio is higher when compared to West Coast.
	This is in part ,is explained by the single board style for East Coast as compared to the two styles available in west coast.
	Taking a closer look Atlantic wave manufacturing margin is $162 while Pacific Pounder is $84.
	And the Atlantic Wave's variable selling expense is $144 while the Pacific Pounder is $72.
	With an eye on improving the profitability ,modifying the product mix within the two territories would be ineffective.
	Additionally the company should review the Variable costs.
	The variable costs of goods sold could shed light on the manufacturing inefficiencies.
	Also a review of Atlantic's variable selling expenses per unit could also help the profitability.