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	$13,900		$15,300		$8,500		$18,400
Variable cost of goods sold	$8,340		$8,262		$5,270		$8,096
Commission rate	7%		14%		12%		9%
Units sold	32		25		38		44
Manufacturing margin ratio	40%		46%		38%		56%

a. 1. Prepare a contribution margin by salesperson report. Calculate the contribution margin ratio for each salesperson. If required, round contribution margin ratio to one decimal place.

Havasu Off-Road Inc.
Contribution Margin by Salesperson
	Rene	Steve	Colleen	Paul
	$	$	$	$
	$	$	$	$
	$	$	$	$
Contribution margin ratio	%	%	%	%

a. 2. Interpret the report.

Paul earns the   contribution margin and has the   contribution margin ratio. This is because he sells the   units, has a   commission rate, and sells a product mix with a   manufacturing margin. Steve also sells products with a   average manufacturing margin but at a   commission rate. Colleen has the   contribution margin ratio among the four salespersons. Although Rene has a high variable cost of goods sold and also sells products with a   average sales price per unit, she has the second   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
	$	$
	$	$
	$	$
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   contribution margin ratio. The Southwest Region has the   performance, even though it also has the salesperson with the   contribution margin and contribution margin ratio. The Northeast Region contribution margin is   than the Southwest Region because of the outstanding performance of  .

Answer 1

S.No	Particulars	Rene	Steve	Colleen	Paul
(a)	Sales Price	$ 444,800	$ 382,500	$ 323,000	$ 809,600
(b)	Variable cost of goods sold	$ 266,880	$ 206,550	$ 200,260	$ 356,224
(c)	Manufacturing Margin	$ 177,920	$ 175,950	$ 122,740	$ 453,376
(d)	Less: Variable commission expense	$ 31,136	$ 53,550	$ 38,760	$ 72,864
(e)	Contribution Margin	$ 146,784	$ 122,400	$ 83,980	$ 380,512
(f)	Contribution Margin ratio	33%	32%	26%	47%

Pauls earns highest contribution margin and has the highest contribution margin ratio.

This is because he sells the most unit has a low commission rate and sells a product mix with a high manufacturing margin

Steve also sells product with a high average manufacturing margin but at a high commission rate.

Colleen has the poorest contribution margin ratio among the four sales persons.

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

Workings:
		Rene	Steve	Colleen	Paul
(a)	Number of Units	32	25	38	44
(b)	Selling Price per unit	13900	15300	8500	18400
(c)	Sales Value [(a)*(b)]	444800	382500	323000	809600
(d)	Variable cost of goods sold per unit	8340	8262	5270	8096
(e)	Variable cost of goods sold [(a)*(d)]	266880	206550	200260	356224
(f)	Manufacturing Margin [(c) - (e)]	177920	175950	122740	453376
(g)	Variable commission expense %	7%	14%	12%	9%
(h)	Variable commission expense [(c)*(g)]	31136	53550	38760	72864
(i)	Contribution Margin [(f)-(h)]	146784	122400	83980	380512
(j)	Contribution Margin ratio ([(i)/(c)]*100)	33%	32%	26%	47%

===========================================================

S.No	Particulars	North East	Southwest
(a)	Sales Price	$ 827,300	$ 1,132,600
(b)	Variable cost of goods sold	$ 473,430	$ 556,484
(c)	Manufacturing Margin	$ 353,870	$ 576,116
(d)	Less: Variable commission expense	$ 84,686	$ 111,624
(e)	Contribution Margin	$ 269,184	$ 464,492
(f)	Contribution Margin ratio [269184/827300] [464492/1132600]	32.5%	41.0%

The southwest region has $ 305300 (1132600 - 827300) more sales and $ 195,308 (464492-269184) more contribution margin.

In the southwest region, the sales person 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 sales person with the lowest contribution and contribution margin ratio.

The Northeast region contribution margin is less than southwest region because of the outstanding performance of Paul

Workings
S.No	Particulars	Rene	Steve	North East = Rene + Steve
(a)	Sales Price	$ 444,800	$ 382,500	$ 827,300
(b)	Variable cost of goods sold	$ 266,880	$ 206,550	$ 473,430
(c)	Manufacturing Margin	$ 177,920	$ 175,950	$ 353,870
(d)	Less: Variable commission expense	$ 31,136	$ 53,550	$ 84,686
(e)	Contribution Margin	$ 146,784	$ 122,400	$ 269,184

Workings
S.No	Particulars	Colleen	Paul	South west = Colleen + Paul
(a)	Sales Price	$ 323,000	$ 809,600	$ 1,132,600
(b)	Variable cost of goods sold	$ 200,260	$ 356,224	$ 556,484
(c)	Manufacturing Margin	$ 122,740	$ 453,376	$ 576,116
(d)	Less: Variable commission expense	$ 38,760	$ 72,864	$ 111,624
(e)	Contribution Margin	$ 83,980	$ 380,512	$ 464,492