Question

1. Sales Territory and Salesperson Profitability Analysis

   Havasu Off-Road Inc. manufactures and sells a variety of commercial vehicles in the Northeast and Southwest regions. There are two salespersons assigned to each territory. Higher commission rates go to the most experienced salespersons. The following sales statistics are available for each salesperson:

   	Northeast				Southwest
   	Rene		Steve		Colleen		Paul
   Average per unit:
   Sales price	$12,400		$15,200		$9,600		$18,100
   Variable cost of goods sold	$7,440		$9,120		$6,144		$7,240
   Commission rate	8%		12%		11%		9%
   Units sold	33		24		36		42
   Manufacturing margin ratio	40%		40%		36%		60%

   a. 1. Prepare a contribution margin by salesperson report. Calculate the contribution margin ratio for each salesperson. If required, round contribution margin ratio to one decimal place.

   Havasu Off-Road Inc.
   Contribution Margin by Salesperson
   	Rene	Steve	Colleen	Paul
   	$	$	$	$
   	$	$	$	$
   	$	$	$	$
   Contribution margin ratio	%	%	%	%

   a. 2. Interpret the report.

   Paul earns the   contribution margin and has the   contribution margin ratio. This is because he sells the   units, has a   commission rate, and sells a product mix with a  manufacturing margin. Steve also sells products with a   average manufacturing margin but at a  commission rate. Colleen has the   contribution margin ratio among the four salespersons. Although Rene has a high variable cost of goods sold and also sells products with a   average sales price per unit, she has the second   total contribution margin.

   b. 1. Prepare a contribution margin by territory report. Calculate the contribution margin for each territory as a percent, rounded to one decimal place.

   Havasu Off-Road Inc.
   Contribution Margin by Territory
   	Northeast	Southwest
   	$	$
   	$	$
   	$	$
   Contribution margin ratio	%	%

   b. 2. Interpret the report.

   b. 2. Interpret the report.

   The Southwest Region has $ ____more sales and $ _____ more contribution margin.

Answer 1

Ans-a-1-Havasu Off-road Inc.

Contribution Margin by Salesperson

	Rene	Steve	Colleen	Paul
Sales	$409,200 ($12,400 *33)	$364,800 ($15,200* 24)	$345,600 ($9,600 *36)	$760,200 ($18,100*42)
Less: Variable cost of goods sold	245,520 ($7,440 *33)	218,880 ($91,20 * 24)	221,184 ($6,144 *36)	304,080 ($7,240 *42)
Manufacturing Margin	163,680	145,920	124,416	456,120
Less: Variable commission expenses	32,736 ($409,200*8%)	43,776 ($364,800 *12%)	38,016 ($345,600* 11%)	68,418 ($760,200*9%)
Contribution Margin	130,944	102,144	86,400	387,702
Contribution Margin Ratio (Contribution / Sales * 100)	32%	28%	25%	51%

a-2- Interpret the report :-

Paul earns the highest  contribution margin and has the highest  contribution margin ratio. This is because he sells the most units, has a  low commission rate, and sells a product mix with a high manufacturing margin. Steve also sells products with a high  average manufacturing margin but at a high commission rate. Colleen has the poorest  contribution margin ratio among the four salespersons. Although Rene has a high variable cost of goods sold and also sells products with a low  average sales price per unit, she has the second  highest total contribution margin.

b-1-

Havasu Off-Road Inc.
Contribution Margin by Territory
	Northeast	Southwest
Sales	$774,000	$1,105,800
Less:Variable cost of good sold	464,400	525,264
Manufacturing Margin	$309,600	$580,536
Less: Variable commission expenses	76,512	106,434
Contribution Margin	$233,088	$474,102
Contribution margin ratio (Contribution / Sales *100)	30.11%	42.87%

b-2-The Southwest Region has $ 331,800 ($1,105,800-$774,000) more sales and $241,014 ($474,102-$233,088) more contribution margin.