Refer to the data in Exercise 11-3. Assume that Vancouver's sales by major market are as follows:

Data from in exercise 11-3.

Middleton Associates is a consulting firm that specializes in information systems for construction and landscaping companies. The firm has two offices-one in Toronto and one in Vancouver. The firm classifies the direct costs of consulting jobs as variable costs. A segmented contribution format income statement for the company's most recent year is given below:

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 construction market by $70,000 or increase sales in the landscaping market by $60,000.

Required:
1. In which of the markets would you recommend that the company focus its advertising campaign? Show computations to support your answer.

2. In Exercise 11-3, Vancouver shows $90,000 in traceable fixed expenses. What happened to the $90,000 in this exercise?

Transcribed Image Text:

Sales .... Variable expenses Contribution margin Traceable fixed expenses Market segment margin.. Common fixed expenses not traceable to offices. Office segment margin.. .... Vancouver $600,000 100.0% 360,000 240,000 72,000 168,000 18,000 $150,000 Market $400,000 100% $200,000 100% 60 260,000 65 100,000 50 40 140,000 35 100,000 50 12 5 20,000 28 $120,000 52,000 26 24% 30% 25% Construction Landscaping Clients Clients $ 48,000