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Salespersons' Report and Analysis Walthman Industries Inc. employs seven salespersons to sell and distribute its product...

  1. Salespersons' Report and Analysis

    Walthman Industries Inc. employs seven salespersons to sell and distribute its product throughout the state. Data taken from reports received from the salespersons during the year ended December 31 are as follows:

    Salesperson Total Sales Variable Cost of Goods Sold Variable Selling Expenses
    Case $620,000 $266,600 $136,400
    Dix 360,000 158,400 79,200
    Johnson 585,000 193,050 99,450
    LaFave 505,000 257,550 90,900
    Orcas 423,000 152,280 63,450
    Sussman 594,000 285,120 112,860
    Willbond 480,000 182,400 72,000

    Required:

    1. Prepare a table indicating contribution margin, variable cost of goods sold as a percent of sales, variable selling expenses as a percent of sales, and contribution margin ratio by salesperson. Round percents to the nearest whole number. Enter all amounts as positive numbers.

    Waltham Industries Inc.
    Salespersons' Analysis
    For the Year Ended December 31
    Salesperson Contribution Margin Variable Cost of Goods
    Sold as a Percent of Sales
    Variable Selling Expenses
    as a Percent of Sales
    Contribution Margin
    Ratio
    Case $ % % %
    Dix % % %
    Johnson % % %
    LaFave % % %
    Orcas % % %
    Sussman % % %
    Willbond % % %

    2. Which salesperson generated the highest contribution margin ratio for the year?

    3. Identify the factors other than contribution margin that should be considered in evaluating the performance of salespersons.

    1. Rate of growth in sales for the current year compared with past years
    2. Years of experience for salespersons
    3. Size of sales territory
    4. Actual sales compared with budgeted sales
    5. All of the above

Solutions

Expert Solution

The table as computed is stated below:

Sales person Total Sales Variable Cost of Goods Sold Variable Selling Expenses Contribution Margin Variable Cost of Goods Sold as a % of Sales Variable Selling Expense as a % of Sales Contribution Margin Ratio
A B C D E=B-(C+D) F=C/B% G=D/B% H=E/B%
Case $620,000 $266,600 $136,400 $217,000 43% 22% 35%
Dix 360,000 158,400 79,200 $122,400 44% 22% 34%
Johnson 585,000 193,050 99,450 $292,500 33% 17% 50%
LaFave 505,000 257,550 90,900 $156,550 51% 18% 31%
Orcas 423,000 152,280 63,450 $207,270 36% 15% 49%
Sussman 594,000 285,120 112,860 $196,020 48% 19% 33%
Willbond 480,000 182,400 72,000 $225,600 38% 15% 47%

As clearly evident from the chart Johnson generated the highest contribution margin ratio for the year at 50%. He is just better than Orcas which gave a 49% contribution margin.

Contribution margin alone cannot be regarded for evaluating the performance of salesperson. The other factors which need to be considered in evaluating the performance should be

Volume of Sales: Sales is considered as a very important factor as a performance factor. It measures to what extent the market is overed by the company. Hence in terms of volume of sales, Case leads with $620,000 sales

Variable Selling Expenses: The variable cost of goods sold is not in hands of the salespersons, but variable selling expenses is. Hence the salesperson generating sales with minimal cost of sales should be considered as a good performance. In this case Orcas and Willbond have shown good performance incurring only 15% variable selling expenses.

Again out of the options given here, "All of the above holds good" as each of these other factors are important to be considered in evaluating the performance of sales persons.


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