Question

Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:

Sales	$	1,582,000
Variable expenses		603,920
Contribution margin		978,080
Fixed expenses		1,076,000
Net operating income (loss)	$	(97,920)

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:

	Division
	East			Central			West
Sales	$	392,000		$	610,000		$	580,000
Variable expenses as a percentage of sales		51	%		32	%		36	%
Traceable fixed expenses	$	291,000		$	321,000		$	199,000

Prepare a contribution format income statement segmented by divisions.

		Division
	Total Company	East	Central	West

The Marketing Department has proposed increasing the West Division's monthly advertising by $29,000 based on the belief that it would increase that division's sales by 15%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented? (Do not round intermediate calculations.)

Net operating income will

by

Would you recommend the increased advertising?

Yes or No

Answer 1