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	$	1,608,000
Variable expenses		611,400
Contribution margin		996,600
Fixed expenses		1,096,000
Net operating income (loss)	$	(99,400)

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	$	378,000		$	660,000		$	570,000
Variable expenses as a percentage of sales		60	%		22	%		42	%
Traceable fixed expenses	$	273,000		$	335,000		$	191,000

Question.

1. The Marketing Department has proposed increasing the West Division's monthly advertising by $29,000 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? (Do not round intermediate calculations.)

Answer 1