Question

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 $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%

Prepare a contribution margin by salesperson report. Compute the contribution margin ratio for each salesperson.

Answer 1

Answer:

                                       Northeast               Southwest

                                   Rene       Steve        Colleen     Paul

Sales Price                 $15,500  $16,000    $14,000   $18,000

Less: Variable costs:

COGS                         $9,300   $8,000      $8,400     $9,000

Commission               $1,240    $1,920       $1,400      $1,440

Contribution Margin  $4,960   $6,080      $4,200     $7,560

(Sales Price - Variable costs)

CM Ratio                       32%         38%          30%           42%

(Contribution Margin / Sales )

Explanation:

Contribution margin is the net of sale amount and variable cost. It is the amount of return available to recover the fixed cost and make profit from after that for the business.

Contribution margin ratio is the rate of contribution margin to the sales value of the given product.