4. The following points should be brought to the attention of management:
a. Sales in the West are much lower than in the other two regions. This
is not due to lack of salespeople since salaries in the West are about
the same as in the Central Region, which has the highest sales of the
three regions.
b. The West is spending about half as much for advertising as the Cen-
tral Region. Perhaps this is the reason for the West’s lower sales.
c. The East apparently is selling a large amount of low-margin items.
Note that it has a contribution margin ratio of only 46%, compared to
60% or more for the other two regions.
d. The East appears to be overstaffed. Its salaries are about 50%
greater than in either of the other two regions.
e. The East is not covering its own traceable costs. Major attention
should be given to improving the sales mix and reducing expenses in
this region.
f. Apparently, the salespeople in all three regions are on a salary basis.
Perhaps a change to a commission basis would encourage the sales
staff to be more aggressive and improve sales throughout the com-
pany.
Problem 12-26 (60 minutes)
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