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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)
