Managerial Accounting
Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 7, Problem 14E

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:

Chapter 7, Problem 14E, Sales territory and salesperson profitability analysis Havasu Off-Road Inc. manufactures and sells a

  1. a. 1. Prepare a contribution margin by salesperson report. Compute the contribution margin ratio for each salesperson.

    2. Interpret the report.

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

    2. Interpret the report.

A.1.

Expert Solution
Check Mark
To determine

Calculate the contribution margin ratio for each salesperson.

Explanation of Solution

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 overhead. Fixed factory overhead treated as period (fixed) expense.

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.

The contribution margin ratio for each salesperson is as follows:

Rene

HO Incorporation
 Contribution margin by salesperson (Northeast)
 Particulars  Rene ($)
 Sales (36 units × $15,500)  (A)558,000
 Less: Variable cost (36 units × $9,300)334,800
 Manufacturing margin 223,200
 Less: Variable selling expense ( $558,000×8100)44,640
 Contribution margin (B)178,560
 Contribution margin ratio (BA)×10032.00%

Table (1)

Steve

HO Incorporation
 Contribution margin by salesperson (Northeast)
 Particulars  Steve($)
 Sales (24 units × $16,000)  (A)       384,000
 Less: Variable cost (24 units × $8,000)       192,000
 Manufacturing margin        192,000
 Less: Variable selling expense ( $384,000×12100)         46,080
 Contribution margin (B)       145,920
 Contribution margin ratio (BA)×10038.00%

Table (2)

Colleen

HO Incorporation
 Contribution margin by salesperson (Southwest)
 Particulars  Colleen($)
 Sales (40 units × $14,000)  (A)     560,000
 Less: Variable cost (40 units × $8,400)     336,000
 Manufacturing margin      224,000
 Less: Variable selling expense ( $560,000×10100)       56,000
 Contribution margin (B)     168,000
 Contribution margin ratio (BA)×10030.00%

Table (3)

Paul

HO Incorporation
 Contribution margin by salesperson (Southwest)
 Particulars  Paul($)
 Sales (60 units × $18,000)  (A)    1,080,000
 Less: Variable cost (60 units × $9,000)       540,000
 Manufacturing margin        540,000
 Less: Variable selling expense ( $1,080,000×8100)         86,400
 Contribution margin (B)       453,600
 Contribution margin ratio (BA)×10042.00%

Table (4)

Conclusion

Therefore, contribution margin of Rene is $178,560, Steve is $145,920, Colleen is $168,000, and Paul is $453,600. Contribution margin ratio of Rene is 32%, Steve is 38%, Colleen is 30%, and Paul is 42%.

A.2.

Expert Solution
Check Mark
To determine

Interpret the profitability report of the salesperson.

Explanation of Solution

Contribution margin and contribution margin ratio of salesperson Paul 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 Rene has a second-highest total contribution margin of $178,560, and Steve has second highest contribution margin ratio of 38%.

B.1.

Expert Solution
Check Mark
To determine

Calculate the contribution margin ratio for each territory.

Explanation of Solution

The contribution margin ratio for each territory is as follows:

Northeast

HO Incorporation
 Contribution margin by territory 
 Particulars  Northeast
 Sales (36 units × $15,500)+(24 units × $16,000)(A)     942,000
 Less: Variable cost (36 units × $9,300)+(24 units × $8,000)     526,800
 Manufacturing margin      415,200
 Less: Variable selling expense ($44,640+$46,080)       90,720
 Contribution margin (B)     324,480
 Contribution margin ratio (BA)×10034.45%

        Table (5)

Southwest

HO Incorporation
 Contribution margin by territory 
 Particulars  Southwest
 Sales (40 units × $14,000)+(60 units × $18,000) (A)  1,640,000
 Less: Variable cost (40 units × $8,400)+(60 units × $9,000)     876,000
 Manufacturing margin      764,000
 Less: Variable selling expense ($56,000+$86,400)     142,400
 Contribution margin (B)     621,600
 Contribution margin ratio (BA)×10037.90%

Table (6)

B. 2.

Expert Solution
Check Mark
To determine

State the advice regarding the relative profitability of two territories.

Explanation of Solution

The southwest region contribution margin and contribution margin ratio are higher than the northeast region because the southwest region has $698,000 more sales and $297,120 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.

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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%
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 Manufacturing margin cat Northeast Southwest Rene Steve Colleen Paul $15,500 $16,000 $14,000 $18,000 $8,000 $5,400 19.000 n 126 10% 60 a a. 1. Prepare a contribution margin by salesperson report. Compute the contribution margin ratio for each salesperson.

Chapter 7 Solutions

Managerial Accounting

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