Question

Rains Nickless Company, a wholesale distributor of DVDs has two geographical division named as Perth and Darwin. The segmented income statement for the company’s most recent years are given below:

	Rains Nickless	Perth	Darwin
Sales	600000	200000		400000
(-) Variable Expenses	360000	100000		260000
CM	240000	100000		140000
(-) Traceable fixed expenses	72000	52000		20000
Segment margin	168000	48000		120000
(-)Common fixed expenses	18000
Net operating income	150000

Required:

1. By how much would the company’s net operating income increase if Darwin division increases its sales by Tk. 70000 per year? Assume no change in cost behavior pattern except the increase of advertising expense of tk 10000.

2. Refer to the original data prepare a new segmented income statement for the company using the format above both in amount and percentage assuming that the Perth division increase its sales by Tk. 100000 next year and Darwin increase it Sales by Tk. 200000.

3. The company would like to initiate an intensive advertising campaign in one of the two, markets during the next month. The campaign would cost Tk. 18000. Marketing studies indicate that such a campaign would increase sales in the Perth division by Tk. 90000 or increase sales in the Darwin division by Tk. 100000. In which division would you recommend that the company focus its advertising campaign? Show computations to support your answer.

Note: Please don't do it on Excel.

Answer 1