Problem:
| Dallas |
Market |
|
|
Construction Clients |
Landscaping clients |
|
|
|
| Sales $600,000 100% |
$400.000 100% |
$200,000 100% |
| Variable expenses 360,000 60% |
260,000 65% |
100,000 50% |
| Contribution margin 240,000 40% |
140,000 35 |
100,000 50% |
| Traceable fixed expenses 72,000 12 |
20,000 5 |
52,000 26 |
| Market segment margin 168,000 28 |
120,000 30% |
$48,000 24% |
| Common fixed expenses |
|
|
| not traceable to markets 18,000 3 |
|
|
|
|
|
| Office segment margin 150,000 25% |
|
|
The company would like to initiate an intensive advertising campaign in one of the two markets during the next month.
The campaign would cost $8,000. Marketing studies indicate that such a campaign would increase sales in the contruction market by $70,000 or increase sales in the landscaping market by $60,000.
Question 1. In which of the markets would you recommend that the company focus its advertising campaign? Show computations to support your answer.
Question 2. If Dallas once showed $90,000 in traceable fixed expenses, what happened to the $90,000 in this example?