Question

1.

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	$	1,515,000
Variable expenses		698,000
Contribution margin		817,000
Fixed expenses		899,000
Net operating income (loss)	$	(82,000)

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	$	355,000		$	640,000		$	520,000
Variable expenses as a percentage of sales		56	%		39	%		48	%
Traceable fixed expenses	$	264,000		$	320,000		$	205,000

Required:

1. Prepare a contribution format income statement segmented by divisions.

		Division
	Total Company	East	Central	West
Sales	$1,515,000	$355,000	$640,000	$520,000
Variable expenses	698,000	198,800	249,600	249,600
Contribution margin	817,000	156,200	390,400	270,400
Traceable fixed expenses		264,000	320,000	205,000
Divisional segment margin	817,000	$(107,800)	$70,400	$65,400
Common fixed expenses not traceable to divisions
Net operating loss	$817,000

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 14%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented?

Net operating income will

by

Answer 1