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Chapter 21: Q11SE (page 1168)

Analyzing profitability Refer to Short Exercise S21-10. Which business segment provided the greatest total contribution margin? Which

business segment had the highest contribution margin ratio?

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

$12,000

Variable cost per unit

6,283

7,072

7,080

Short Answer

Expert verified

Answer

Midland has the highest contribution margin and contribution margin ratio.

Step by step solution

01

Calculation of net sales revenue and variable cost

Particulars

East Coast

Midland

West Coast

Net sales revenue (Units sold x Sales price per unit)

71x$10,300 =$731,300

69x$13,600 =$938,400

53x$12,000 =$636,000

Variable cost (Units sold x Variable cost per unit)

71x$6,283 =$446,093

69x$7,072 =$487,968

53x$7,080

=$375,240

02

Profitability analysis based on contribution margin

Particulars

East Coast

Midland

West Coast

Net sales revenue

$731,300

$938,400

$636,000

Less: Variable cost

$446,093

$487,968

$375,240

Contribution Margin

$285,207

$450,432

$260,760

As per the above statement, Midland has provided the greatest total contribution margin.

03

Profitability analysis based on contribution margin ratio

Particulars

East Coast

Midland

West Coast

Net sales revenue

$731,300

$938,400

$636,000

Less: Variable cost

$446,093

$487,968

$375,240

Contribution Margin

$285,207

$450,432

$260,760

Contribution margin ratio (Contribution margin/net sales revenue)

39%

48%

41%

Midland had the highest contribution margin ratio.

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Most popular questions from this chapter

What are the two components that can affect contribution margin? Why is it important to investigate both?

Using variable and absorption costing, making decisions The 2018 data that follow pertain to Eli鈥檚 Electric Eyewear, a manufacturer of swimming goggles. (Eli鈥檚 Electric Eyewear had no beginning Finished Goods Inventory in January 2018.)

Number of goggles produced 245,000 Number of goggles sold 215,000 Sales price per unit \( 22Variable manufacturing cost per unit 8Sales commission cost per unit 5Fixed manufacturing overhead 1,470,000 Fixed selling and administrative costs 250,000 Requirements

1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Eli鈥檚 Electric Eyewear for the year ended December 31, 2018.

2. Which statement shows the higher operating income? Why?

3. Eli鈥檚 ElectricEyewear鈥檚 marketing vice president believes a new sales promotion that costs \)60,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reasoning.

Analyzing profitability

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

\(12,000

Variable cost per unit

6,283

7,072

7,080

Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.

Question: Using variable costing, service company

Divine Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of August:

Requirements

1. Calculate the contribution margin ratio for each business segment.

2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.

3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?

Question: Computing absorption costing operating income

Refer to the information for Concord, Inc.

Requirements

  1. Using absorption costing, calculate the unit product cost.
  2. Prepare an income statement using the traditional format.

Use the following information for Exercises E21-14 and E21-15.

Concord, Inc. has collected the following data for November (there are no beginning inventories):

Units produced and sold 500 units Sales price $ 450 per unit Direct materials 64 per unit Direct labor 68 per unit Variable manufacturing overhead 26 per unit Fixed manufacturing overhead 7,500 per month Variable selling and administrative costs 15 per unit Fixed selling and administrative costs 4,400 per month

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