Question

Sales Territory and Salesperson Profitability Analysis

Havasu Off-Road Inc. manufactures and sells a variety of commercial vehicles in the Northeast and Southwest regions. There are two salespersons assigned to each territory. Higher commission rates go to the most experienced salespersons. The following sales statistics are available for each salesperson:

	Northeast				Southwest
	Rene		Steve		Colleen		Paul
Average per unit:
Sales price	$15,500		$16,000		$14,000		$18,000
Variable cost of goods sold	$9,300		$8,000		$8,400		$9,000
Commission rate	8%		12%		10%		8%
Units sold	36		24		40		60
Manufacturing margin ratio	40%		50%		40%		50%

a. 1. Prepare a contribution margin by salesperson report. Calculate the contribution margin ratio for each salesperson.

Havasu Off-Road Inc.
Contribution Margin by Salesperson
	Rene	Steve	Colleen	Paul
Sales	$	$	$	$
Variable cost of goods sold
Manufacturing margin	$	$	$	$
Variable commission expense
Contribution margin	$	$	$	$
Contribution margin ratio	%	%	%	%

a. 2. Interpret the report.

Paul earns the highest  contribution margin and has the highest  contribution margin ratio. This is because he sells the most  units, has a low  commission rate, and sells a product mix with a high  manufacturing margin. Steve also sells products with a high  average manufacturing margin but at a high  commission rate. Colleen has the poorest  contribution margin ratio among the four salespersons. Although Rene has a high variable cost of goods sold and also sells products with a low  average sales price per unit, she has the second highest  total contribution margin.

b. 1. Prepare a contribution margin by territory report. Calculate the contribution margin for each territory as a percent, rounded to one decimal place.

Havasu Off-Road Inc.
Contribution Margin by Territory
	Northeast	Southwest
Sales	$	$
Variable cost of goods sold
Manufacturing margin	$	$
Variable commission expense
Contribution margin	$	$
Contribution margin ratio	%	%

b. 2. Interpret the report.

The Southwest Region has $ more sales and $ more contribution margin. In the Southwest Region, the salesperson with the highest sales unit volume, has the highest  contribution margin ratio. The Southwest Region has the highest  performance, even though it also has the salesperson with the lowest  contribution margin and contribution margin ratio. The Northeast Region contribution margin is less  than the Southwest Region because of the outstanding performance of Paul .

Answer 1

Contribution Margin by Salesperson
	Rene	Steve	Colleen	Paul
Sales	558,000	384,000	560,000	1,080,000
Variable cost of goods sold	334,800	192,000	336,000	540,000
Manufacturing margin	223,200	192,000	224,000	540,000
Variable commission expense	44,640	46,080	56,000	86,400
Contribution margin	178,560	145,920	168,000	453,600
Contribution margin ratio	32%	38%	30%	42%

Paul earns the highest  contribution margin and has the highest  contribution margin ratio. This is because he sells the most  units, has a low  commission rate, and sells a product mix with a high  manufacturing margin. Steve also sells products with a high  average manufacturing margin but at a high  commission rate. Colleen has the poorest  contribution margin ratio among the four salespersons. Although Rene has a high variable cost of goods sold and also sells products with a low  average sales price per unit, she has the second highest  total contribution margin.

Havasu Off-Road Inc.
Contribution Margin by Territory
	Northeast	Southwest
Sales	942,000	1,640,000
Variable cost of goods sold	526,800	876,000
Manufacturing margin	415,200	764,000
Variable commission expense	90,720	142,400
Contribution margin	324,480	621,600
Contribution margin ratio	34.45%	37.90%

The Southwest Region has $ more sales and $ more contribution margin. In the Southwest Region, the salesperson with the highest sales unit volume, has the highest  contribution margin ratio. The Southwest Region has the highest  performance, even though it also has the salesperson with the lowest  contribution margin and contribution margin ratio. The Northeast Region contribution margin is less  than the Southwest Region because of the outstanding performance of Paul .