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    Bovine Company: Prepare a contribution income statement

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    Bovine Company, a wholesale distributor of DVDs, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement below:

    Sales $ 1,596,000
    Variable expenses 578,500
    ________________________________________ ________________________________________
    Contribution margin 1,017,500
    Fixed expenses 1,119,000
    ________________________________________ ________________________________________
    Net operating loss $ (101,500)

    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 data:

    Geographic Market
    South Central North
    Sales $ 436,000 $ 630,000 $ 530,000
    Variable expenses as a percentage of sales 55 % 26 % 33 %
    Traceable fixed expenses $ 267,000 $ 321,000 $ 193,000

    1. Prepare a contribution format income statement segmented by geographic market, as desired by the president. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

    Geographic Market
    Company South Central North

    2-a. The company's sales manager believes that sales in the Central geographic market could be increased by 15% if monthly advertising were increased by $27,000. Calculate the incremental net operating income. (Omit the "$" sign in your response.)

    Incremental net operating income $

    2-b. Would you recommend the increased advertising?



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    Solution Summary

    The expert prepares a contribution income statement for Bovine Company.