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: i. Prepare a contribution format income statement segmented by geographic market, as desired by the president. ii. The company’s sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising were increased by $25,000. Would you recommend the increased advertising? Show computations to support your answer.