Q11SE - Horngren'S Financial And Managerial Accounting

Question

Analyzing profitability Refer to Short Exercise S21-10. Which business segment provided the greatest total contribution margin? Which 

business segment had the highest contribution margin ratio?                                                       

 

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018: 

 

 

	East Coast	Midland	West Coast
Units sold	71	69	53
Sales price per unit	\(10,300	\)13,600	$12,000
Variable cost per unit	6,283	7,072	7,080

Step-by-Step Solution

Answer

Answer

 

Midland has the highest contribution margin and contribution margin ratio.

 

Step 1: Calculation of net sales revenue and variable cost

Particulars	East Coast	Midland	West Coast
Net sales revenue (Units sold x Sales price per unit)	71x$10,300 =$731,300	69x$13,600 =$938,400	53x$12,000 =$636,000
Variable cost (Units sold x Variable cost per unit)	71x$6,283 =$446,093	69x$7,072 =$487,968	53x$7,080 =$375,240

Step 2: Profitability analysis based on contribution margin

Particulars	East Coast	Midland	West Coast
Net sales revenue	$731,300	$938,400	$636,000
Less: Variable cost	$446,093	$487,968	$375,240
Contribution Margin	$285,207	$450,432	$260,760

As per the above statement, Midland has provided the greatest total contribution margin.

Step 3: Profitability analysis based on contribution margin ratio

Particulars	East Coast	Midland	West Coast
Net sales revenue	$731,300	$938,400	$636,000
Less: Variable cost	$446,093	$487,968	$375,240
Contribution Margin	$285,207	$450,432	$260,760
Contribution margin ratio (Contribution margin/net sales revenue)	39%	48%	41%

Midland had the highest contribution margin ratio.