ADMS 2510 Managerial Accounting Week 9 Tutorial problems - All Answers are Correct

Week 9: Tutorial problems 11-2, 11-5, 11-23 EXERCISE 11–2 Segmented Income Statement Bovine Company, a wholesale distributor of umbrellas, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement below: Sales $2,000,000 Variable expenses 792,000 Contribution margin 1,208,000 Fixed expenses 1,305,000 Operating loss $ (97,000)    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: Geographic Market South Central North Sales $600,000 $800,000 $600,000 Variable expenses as a percentage of sales 52% 30% 40% Traceable fixed expenses $320,000 $530,000 $300,000 Required: 1.Prepare a contribution-format income statement segmented by geographic market, as requested by the president. 2.The company's sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising was increased by $25,000. Would you recommend the increased advertising? Show computations to support your answer. Total Geographic Market Company South Central North Sales $2,000,000 $600,000 $800,000 $600,000 Variable expenses (52%, 30%, 40%) 792,000 312,000 240,000 240,000 Contribution margin 1,208,000 288,000 560,000 360,000 Traceable fixed expenses 1,150,000 320,000 530,000 300,000 Geographic market segment margin 58,000 $(32,000) $ 30,000 $60,000 Common fixed expenses not traceable to geographic markets $1,305,000 – $1,150,000 155,000 Operating income (loss) $ (97,000) 2 . Incremental sales ($800,000 × 15%) $120,000 Contribution margin ratio ($560,000 ÷ $800,000) × 70% Incremental contribution margin 84,000 Less incremental advertising expense 25,000 Incremental operating income $ 59,000 Yes, the advertising program should be initiated. EXERCISE 11–5 Transfer Pricing Basics Gerbig Company's Electrical Division produces a high-quality transformer. Sales and cost data on the transformer follow: Selling price per unit on the outside market $40 Variable costs per unit $21 Fixed costs per unit (based on capacity) $9 Capacity in units 60,000 Gerbig Company has a Motor Division that would like to begin purchasing this transformer from the Electrical Division. The Motor Division is currently purchasing 10,000 transformers each year from another com