A.
1.
Variable Costing
Managers frequently use variable costing for internal purposes for taking decision making. The cost of goods manufactured includes direct materials, direct labor, and variable factory
Contribution Margin
Contribution margin is the excess of manufacturing margin above selling and administrative expenses. Contribution margin is calculated by deducting the variable cost from sales or deducting variable selling and administrative expenses from manufacturing margin.
To calculate: The contribution margin ratio for each salesperson.
A.
1.
Explanation of Solution
The contribution margin ratio for each salesperson is as follows:
C.G
Incorporation RI | |
Contribution margin by salesperson (Northeast) | |
Particulars | C.G ($) |
Sales
|
2,668,000 |
Less: Variable cost
|
|
Manufacturing margin | 1,612,800 |
Less: Variable selling expense
|
322,560 |
Contribution margin (B) | 752,640 |
Contribution margin ratio
|
28.00% |
Table (1)
To.
Incorporation RI | |
Contribution margin by salesperson (Northeast) | |
Particulars | To. ($) |
Sales
|
2,016,000 |
Less: Variable cost
|
806,400 |
Manufacturing margin | 1,209,600 |
Less: Variable selling expense
|
322,560 |
Contribution margin (B) | 887,040 |
Contribution margin ratio
|
44.00% |
Table (2)
T
Incorporation RI | |
Contribution margin by salesperson (Southwest) | |
Particulars | T ($) |
Sales
|
2,592,000 |
Less: Variable cost
|
1,555,200 |
Manufacturing margin | 1,036,800 |
Less: Variable selling expense
|
414,720 |
Contribution margin (B) | 622,080 |
Contribution margin ratio
|
24.00% |
Table (3)
J
Incorporation RI | |
Contribution margin by salesperson (Southwest) | |
Particulars | J ($) |
Sales
|
2,964,000 |
Less: Variable cost
|
1,185,600 |
Manufacturing margin | 1,778,400 |
Less: Variable selling expense
|
355,680 |
Contribution margin (B) | 1,422,720 |
Contribution margin ratio
|
48.00% |
Table (4)
Therefore, contribution margin of C.G is $752,640, To. is $887,040, T is $622,080, and J is $1,422,720.Contribution margin ratio of C.G is 28%, To. is 44%, T is 24%, and J is 48%.
2.
To interpret: The profitability report of the salesperson.
2.
Explanation of Solution
Contribution margin and contribution margin ratio of salesperson J is higher than the other three salespeople because he sells the more units than others, has a low commission rate, and product mix with high manufacturing margin ratio. Salesperson To. has a second-highest total contribution margin of $887,040, and second highest contribution margin ratio of 44%.
B.
1.
To calculate: The contribution margin ratio for each territory.
B.
1.
Explanation of Solution
The contribution margin ratio for each territory is as follows:
Northeast
Incorporation RI | |
Contribution margin by territory | |
Particulars | Northeast |
Sales
|
4,704,000 |
Less: Variable cost
|
2,419,200 |
Manufacturing margin | 2,284,800 |
Less: Variable selling expense
|
645,120 |
Contribution margin (B) | 1,639,680 |
Contribution margin ratio
|
34.86% |
Table (5)
Southwest
Incorporation RI | |
Contribution margin by territory | |
Particulars | Southwest |
Sales
|
5,556,000 |
Less: Variable cost
|
2,740,800 |
Manufacturing margin | 2,815,200 |
Less: Variable selling expense
|
770,400 |
Contribution margin (B) | 2,044,800 |
Contribution margin ratio
|
36.80% |
Table (6)
2.
To State: The advice regarding the relative profitability of two territories.
2.
Explanation of Solution
The southwest region contribution margin and contribution margin ratio are higher than the northeast region because the southwest region has $852,000 more sales and $405,120 more contribution margin. In addition, the salesperson in the southwest region has the highest unit sold, highest sales price and lowest commission margin. In the northeast region, salespersons are performed very poor than others, and they are trying to improve their sales performance.
Want to see more full solutions like this?
Chapter 20 Solutions
Financial & Managerial Accounting
- 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: Average per unit: Sales price Variable cost of goods sold Commission rate Units sold Manufacturing margin ratio Contribution margin ratio Rene % Steve % Northeast Rene Colleen Steve % $15,500 $16,000 $14,000 $18,000 $9,300 $8,000 $8,400 $9,000 8% 12% 10% 36 40% $ 24 50% a. 1. Prepare a contribution margin by salesperson report. Compute the contribution margin ratio for each salesperson. Havasu Off-Road Inc. Contribution Margin by Salesperson Paul Southwest Colleen % Paul 40 40% 8% 60 50%arrow_forwardSales territory and salesperson profitability analysis Reyes Industries Inc. manufactures and sells a variety of commercial vehicles in the Northeast and South west regions. There are two salespersons assigned to each territory. Highercommission rates go to the most experienced salespersons. The following sales statisticsare available for each salesperson: Northeast Southwest Cassy G. Todd Tim JeffAverage per unit:Sales price . . . . . . . . . . . . . . . . . . . . . . . . . $96,000 $84,000 $108,000 $78,000Variable cost of goods sold . . . . . . . . . . . 57,600 33,600 64,800 31,200Commission rate . . . . . . . . . . . . . . . . . . . . .12% 16% 16% 12%Units sold . . . . . . . . . . . . . . . . . . . . . . . . . . .28 24 24 38Manufacturing margin ratio . . . . . .…arrow_forwardTerritory 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 $350 $300 (130) (138) $162 Sales price Variable cost of goods sold per unit Manufacturing margin per unit Variable selling expense per unit Contribution margin per unit The sales unit volume for the territories and products for the period is as follows: East Coast West Coast 2,960 Atlantic Wave Pacific Pounder 0 1,480 1,480 Coast to Coast Surfboards Inc. Contribution Margin by Territory Sales Variable cost of goods sold Manufacturing margin Variable selling expenses Contribution margin Contribution margin ratio a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if…arrow_forward
- 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 $450 $400 Variable cost of goods sold per unit (167) (196) Manufacturing margin per unit $283 $204 Variable selling expense per unit (202) (92) Contribution margin per unit $81 $112 The sales unit volume for the territories and products for the period is as follows: East Coast West Coast Atlantic Wave 3,600 1,800 Pacific Pounder 1,800 a. Prepare a contribution margin by sales territory report. Compute 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 Territoryarrow_forwardTerritory 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 $400 $300 Variable cost of goods sold per unit (148) (147) Manufacturing margin per unit $252 $153 Variable selling expense per unit (180) (75) Contribution margin per unit $72 $78 The sales unit volume for the territories and products for the period is as follows: East Coast West Coast Atlantic Wave 2,840 1,420 Pacific Pounder 0 1,420 Question Content Area a. Prepare a contribution margin by sales territory report. Compute 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…arrow_forwardTerritory 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 $400 $350 Variable cost of goods sold per unit (148) (168) Manufacturing margin per unit $252 $182 Variable selling expense per unit (172) (84) Contribution margin per unit $80 $98 The sales unit volume for the territories and products for the period is as follows: East Coast West Coast Atlantic Wave 3,360 1,680 Pacific Pounder 0 1,680 a. Prepare a contribution margin by sales territory report. Compute 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…arrow_forward
- Territory and Product Profitability Analysis Pipeline 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 $250 $200 Variable cost of goods sold per unit (93) (92) Manufacturing margin per unit $157 $108 Variable selling expense per unit (112) (52) Contribution margin per unit $45 $56 The sales unit volume for the sales territories and products for the period is as follows: Atlantic Wave Pacific Pounder East Coast West Coast 2,860 0 1,430 1,430 a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory. Round contribution margin ratio answers to two decimal places. Pipeline Surfboards Inc. Contribution Margin by Territory Line Item Description Sales ▾✔ Variable cost of goods sold Manufacturing margin Variable selling…arrow_forwardTerritory 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 $350 $300 Variable cost of goods sold per unit (130) (147) Manufacturing margin per unit $220 $153 Variable selling expense per unit (143) (69) Contribution margin per unit $77 $84 The sales unit volume for the territories and products for the period is as follows: East Coast West Coast Atlantic Wave 3,200 1,600 Pacific Pounder 0 1,600 a. Prepare a contribution margin by sales territory report. Compute 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 Territoryarrow_forwardTerritory 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 $200 $120 Variable cost of goods sold per unit (150) (90) Manufacturing margin per unit $50 $30 Variable selling expense per unit (34) (16) Contribution margin per unit $16 $14 The sales unit volume for the sales territories and products for the period is as follows: East Coast West Coast Atlantic Wave 40,000 25,000 Pacific Pounder 0 25,000 a. Prepare a contribution margin by sales territory report. Compute 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…arrow_forward
- 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 $350 $300 Variable cost of goods sold per unit (130) (147) Manufacturing margin per unit $220 $153 Variable selling expense per unit (150) (75) Contribution margin per unit $70 $78 The sales unit volume for the territories and products for the period is as follows: East Coast West Coast Atlantic Wave 2,660 1,330 Pacific Pounder 0 1,330 a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory as a whole percent, rounded to two decimal places, if required.arrow_forwardTerritory and Product Profitability Analysis Pipeline 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 Variable cost of goods sold per unit Manufacturing margin per unit Variable selling expense per unit Contribution margin per unit $250 $200 (93) (92) $157 $108 (112) $45 (52) $56 The sales unit volume for the sales territories and products for the period is as follows: East Coast West Coast Atlantic Wave Pacific Pounder 2,860 0 1,430 1,430 a. Prepare a contribution margin by sales territory report. Compute the contribution margin ratio for each territory. Round contribution margin ratio answers to two decimal places. Pipeline Surfboards Inc. Contribution Margin by Territory Line Item Description Sales East Coast West Coast 715,000 Variable cost of goods sold Manufacturing…arrow_forwardDogarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College