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 | $ | 1,647,000 |
Variable expenses | 579,420 | |
Contribution margin | 1,067,580 | |
Fixed expenses | 1,174,000 | |
Net operating income (loss) | $ | (106,420) |
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 | $ | 447,000 | $ | 620,000 | $ | 580,000 | |||
Variable expenses as a percentage of sales | 46 | % | 21 | % | 42 | % | |||
Traceable fixed expenses | $ | 263,000 | $ | 329,000 | $ | 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 $23,000 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?
2-b. Would you recommend the increased advertising?
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