Question

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 $364,000 $600,000 $560,000 Variable expenses as a percentage of sales 52% 25% 42% Traceable fixed expenses $298,000 $328,000 $ 197,000 Required: 1. Prepare a contribution format income statement segmented by geographic market, as desired by the president (Input all amounts as positive values except losses which should be indicated by a minus sign.) Geographic Mark Total Company $ South Central $ (Click to select) (Click to select) (Click to select) Click to select) (Click to select) (Click to select Click to select) 2a. The company's sales manager believes that sales in the Central geographic market could be increased by 19% if monthly advertising were increased by $23,000. Calculate the incremental net operating income. Incremental net operating income 2b. Would you recommend the increased advertising? O No Yes

Answer 1

Answer

1 Contribution format income statement

Geographic Market
	Total company	south	Central	North
Sales	1,524,000	364,000	600,000	560,000
Variable cost	574,480	189,280	150,000	235,200
Contribution margin	949,520	174,720	450,000	324,800
Traceable fixed cost	823,000	298,000	328,000	197,000
Operating income	126,520	(123,280)	122,000	127,800

Calculations of variable cost

South = 364,000 × 52% = $189,280

Central = 600,000 × 25% = $150,000

North = 560,000 × 42% = $235,200

2 a 19% increase in sales = 600,000 + 19% = $714,000

Incremental revenue = 714,000 - 600,000 = $114,000

Incremental cost = $23,000

Incremental net operating income

= 114,000 - 23,000 = $91,000

Incremental net operating income is $91,000

2 b yes

Because increase in advertising expenses is increase the sales by $114,000 and net operating income by $91,000.

The above are the detailed calculations,equations and explanations.

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