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Calculate the incremental net operating income

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Question - 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:

Sales $2,190,000

Variable expenses 887,520

Contribution margin 1,302,480

Fixed expenses 1,343,000

Operating loss $(40,520)

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 $619,000 $818,000 $753,000

Variable expenses 50% 32% 42%

Traceable fixed expenses $350,000 $528,000 $319,000

Required -

1. Prepare contribution format income statement segmented by geographic market, as requested by the president.

2-a. The company's sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $44,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising?

Reference no: EM132774169

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