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Chapter 21: Q-21-13 (page 1167)
Explain how the sales mix can affect the profitability of a company.
Answer
A sales mix is the combination of all the products sold and services rendered by the company.
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Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:
For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.
Which type of service is more profitable?
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’s territory as a business segment. The company incurs variable costs that include the employees’ 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?
Analyzing profitability
Relative Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:
Tables Chairs
Sales Price \( 1,400 \) 50
Variable manufacturing costs 1,148 21
Sales commission (8%) 112 4
Relative Furniture has three sales representatives: Abe, Brett, and Corrin. Abe sold 50 tables with 4 chairs each. Brett sold 110 tables with 6 chairs each. Corrin sold 90 tables with 8 chairs each.
Requirements:
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 |
Using variable and absorption costing, making decisions
The 2018 data that follow pertain to Mike’s Magnificent Eyewear, a manufacturer of swimming goggles. (Mike’s Magnificent Eyewear had no beginning Finished Goods Inventory in January 2018.)
Number of goggles produced 245,000
Number of goggles sold 230,000
Sales price per unit \( 28
Variable manufacturing cost per unit 10
Sales commission cost per unit 2
Fixed manufacturing overhead 1,960,000
Fixed selling and administrative costs 260,000
Requirements:
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