Exercise 6-11 (20 minutes)
1.
Division
Total
Company
East
Central
West
Sales …………………………
$1,000,000
$250,000
$400,000
$350,000
Variable expenses ………..
390,000
130,000
120,000
140,000
Contribution margin ……..
610,000
120,000
280,000
210,000
Traceable fixed expenses .
535,000
160,000
200,000
175,000
Divisional segment
margin…………………….
75,000
$(40,000)
$ 80,000
$ 35,000
Common fixed expenses
not traceable to
divisions* ………………..
90,000
Net operating loss ………..
$ (15,000)
*$625,000 – $535,000 = $90,000.
2.
Incremental sales ($350,000 × 20%) …….
$70,000
Contribution margin ratio
($210,000 ÷ $350,000) …………………….
× 60%
Incremental contribution margin …………..
$42,000
Less incremental advertising expense …….
15,000
Incremental net operating income …………
$27,000
Yes, the advertising program should be initiated.
Exercise 6-16 (continued)
