Question

Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as...

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 $ 1,607,000   
  Variable expenses 575,850   
  Contribution margin 1,031,150   
  Fixed expenses 1,134,000   
  Net operating income (loss) $ (102,850)  

  

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 $ 417,000 $ 650,000 $ 540,000
  Variable expenses as a percentage of sales 45 % 24 % 43 %
  Traceable fixed expenses $ 278,000 $ 321,000 $ 198,000
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 17% if monthly advertising in that division were increased by $29,000. Calculate the incremental net operating income.

2-b. Would you recommend the increased advertising?

(Just need the answer please. Thank you.)

Homework Answers

Answer #1

1.

Contribution margin Income Statement
Total East Central West
Sales $16,07,000 $4,17,000 $6,50,000 $5,40,000
Variable cost $5,75,850 $1,87,650 $1,56,000 $2,32,200
Contribution margin $10,31,150 $2,29,350 $4,94,000 $3,07,800
Traceable fixed expense $7,97,000 $2,78,000 $3,21,000 $1,98,000
Segment margin $2,34,150
Common fixed expense $3,37,000
Net oprating loss -$1,02,850

2.

Incremental Net operating income =(100% - 43%) X ($540,000 X 17%) - $29,000 = $23,326

3.

Yes. Advertising should be increased.

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