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 $ 1,586,000 Variable expenses 594,080 Contribution margin 991,920 Fixed expenses 1,091,000 Net operating income (loss) $ (99,080) 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 $ 366,000 $ 660,000 $ 560,000 Variable expenses as a percentage of sales 48 % 32 % 37 % Traceable fixed expenses $ 261,000 $ 336,000 $ 200,000 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 $28,000 based on the belief that it would increase that division's sales by 19%. 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