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$1,667,000

Variable expenses 629,570

Contribution margin 1,037,430

Fixed expenses 1,141,000

Net operating income (loss)$(103,570)

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$397,000 $700,000 $570,000

Variable expenses as a percentage of sales 51% 26% 43%

Traceable fixed expenses$273,000 $321,000 $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 $28,000 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?

Answer 1