Question

Whitegate company a wholesale distributor of electronic equipment ,has been experiencing lossesfor sometime, as shown by its recently monthly format income statement:

Sales: 1,579,000

Variable expenses : 588,950

Contribution margin 990,050

Fixed expenses: 1,089,000

Net Operating income (loss) $98,050

In an effort to resolve the problem, the company would like to prepare an income statement segmented by division. Accordingly,the accounting department has developed the following information

Sales : EAST ( 369,000) Central ( 620,000) West ( 590,00)

Variables expenses as a percentage of sale East (45%) Central (33%). West (37%)

Traceable fixed expenses : EAST (299,000) Central (323,000). West ($206,000)

1. Prepare a contribution format income segmented by divisions

2. The marketing department has proposed increasing the West Divison advertising by $25,000 based on the belief that it would increase the division sales by 15%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented

3. Would you recognize the increase advertising?

Answer 1