Sales Territory and Salesperson Profitability Analysis
Havasu Off-Road Inc. manufactures and sells a variety ofcommercial vehicles in the Northeast and Southwest regions. Thereare two salespersons assigned to each territory. Higher commissionrates go to the most experienced salespersons. The following salesstatistics are available for each salesperson:
| Northeast | Southwest |
| Rene | Steve | Colleen | Paul |
| Average per unit: | | | | |
| Sales price | $15,500 | | $16,000 | | $14,000 | | $18,000 | |
| Variable cost of goods sold | $9,300 | | $8,000 | | $8,400 | | $9,000 | |
| Commission rate | 8% | | 12% | | 10% | | 8% | |
| Units sold | 36 | | 24 | | 40 | | 60 | |
| Manufacturing margin ratio | 40% | | 50% | | 40% | | 50% | |
a. 1. Prepare a contribution margin bysalesperson report. Calculate the contribution margin ratio foreach salesperson.
| Havasu Off-Road Inc. |
| Contribution Margin by Salesperson |
|
| Rene | Steve | Colleen | Paul |
| Sales | $ | $ | $ | $ |
| Variable cost of goods sold | | | | |
| Manufacturing margin | $ | $ | $ | $ |
| Variable commission expense | | | | |
| Contribution margin | $ | $ | $ | $ |
| Contribution margin ratio | % | % | % | % |
a. 2. Interpret the report.
Paul earns the highest contribution margin and hasthe highest contribution margin ratio. This is becausehe sells the most units, has a low commissionrate, and sells a product mix with a high manufacturingmargin. Steve also sells products with a high averagemanufacturing margin but at a high commission rate.Colleen has the poorest contribution margin ratio amongthe four salespersons. Although Rene has a high variable cost ofgoods sold and also sells products with a low averagesales price per unit, she has the second highest totalcontribution margin.
b. 1. Prepare a contribution margin byterritory report. Calculate the contribution margin for eachterritory as a percent, rounded to one decimal place.
| Havasu Off-Road Inc. |
| Contribution Margin by Territory |
|
| Northeast | Southwest |
| Sales | $ | $ |
| Variable cost of goods sold | | |
| Manufacturing margin | $ | $ |
| Variable commission expense | | |
| Contribution margin | $ | $ |
| Contribution margin ratio | % | % |
b. 2. Interpret the report.
The Southwest Region has $ more sales and $ more contributionmargin. In the Southwest Region, the salesperson with the highestsales unit volume, has the highest contribution marginratio. The Southwest Region has the highest performance,even though it also has the salesperson with thelowest contribution margin and contribution marginratio. The Northeast Region contribution margin isless than the Southwest Region because of theoutstanding performance of Paul .
