
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
CengageNOWv2, 2 terms Printed Access Card for Warren?s Financial & Managerial Accounting, 13th, 13th Edition
- Can you demonstrate the accurate method for solving this financial accounting question?arrow_forwardCan you help me solve this general accounting problem using the correct accounting process?arrow_forwardI need guidance with this general accounting problem using the right accounting principles.arrow_forward
- Lakeshore Technologies requires $900,000 in assets and will be 100% equity financed. If the Earnings Before Interest and Taxes (EBIT) is $72,000 and the tax rate is 30%, what is the Return on Equity (ROE)?arrow_forwardAt Boston Industries, as of September 30, the company has net sales of $750,000 and a cost of goods available for sale of $620,000. Compute the estimated cost of the ending inventory, assuming the gross profit rate is 35%.arrow_forwardI am looking for a step-by-step explanation of this financial accounting problem with correct standards.arrow_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

