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# Sales Territory and Salesperson Profitability Analysis Havasu Off-Road Inc. manufactures and sells a variety of commercial...

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  .

## Solutions

##### Expert Solution

 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%

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 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

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