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, which follows:

Sales	$	1,492,000
Variable expenses		636,000
Contribution margin		856,000
Fixed expenses		942,000
Net operating income (loss)	$	(86,000	)

In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information:

  

	Division
	East			Central			West
Sales	$	362,000		$	610,000		$	520,000
Variable expenses as a percentage of sales		60	%		32	%		43	%
Traceable fixed expenses	$	266,000		$	329,000		$	196,000

Required:

1. Prepare a contribution format income statement segmented by divisions, as desired by the president.

2-a. As a result of a marketing study, the president believes that sales in the West Division could be increased by 12% if monthly advertising in that division were increased by $22,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising?

	Yes
	No

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Hint #1

Answer 1