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 $ 1,657,000 Variable expenses 648,240 Contribution margin 1,008,760 Fixed expenses 1,110,000 Net operating income (loss) $ (101,240) 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 $ 407,000 $ 680,000 $ 570,000 Variable expenses as a percentage of sales 52 % 29 % 42 % Traceable fixed expenses $ 275,000 $ 337,000 $ 210,000 Required: 1. Prepare a contribution format income statement segmented by divisions. 2-a. The Marketing Department has proposed increasing the West Division's monthly advertising by $22,000 based on the belief that it would increase that division's sales by 17%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented? 2-b. Would you recommend the increased advertising?

Answer 1