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 | $ | 1,648,000 |
Variable expenses | 671,840 | |
Contribution margin | 976,160 | |
Fixed expenses | 1,074,000 | |
Net operating income (loss) | $ | (97,840) |
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 | $ | 398,000 | $ | 660,000 | $ | 590,000 | |||
Variable expenses as a percentage of sales | 58 | % | 40 | % | 30 | % | |||
Traceable fixed expenses | $ | 277,000 | $ | 324,000 | $ | 205,000 | |||
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 $27,000 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?
1.
Total company | East | Central | West | |
Sales | 1,648,000 | 398,000 | 660,000 | 590,000 |
Variable expenses | 671,840 | 230840 | 264000 | 177000 |
Contribution Margin | 976,160 | 167,160 | 396,000 | 413,000 |
Traceable fixed expenses | 806,000 | 277,000 | 324,000 | 205,000 |
Divisional segment margin | 170,160 | (109,840) | 72,000 | 208,000 |
Common
fixed expenses not traceable to divisions [1,074,000-806,000] |
268,000 | |||
Net operating loss | (97,840) |
2a.
company's net operating income increase (decrease) if the proposal is implemented | 34950 |
Incremental sales | 88500 | [590000*15%] |
Incremental contribution margin | 61950 | [88500*(100%-30%)] |
Less: Advertisement expenses | 27000 | |
company's net operating income increase (decrease) if the proposal is implemented | 34950 |
2b. Yes
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: Sales Variable expenses Contribution margin Fixed expenses Net operating incone (less) $ 1.783.000 577,918 1.125.90 1,238, cee $ (112,910) 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: West $590,000 Sales Variable expenses as a...
A) B) 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 Variable expenses Contribution margin Fixed expenses Net operating income (los) $ 1,585,000 585,650 999,350 1,099,000 $ 99,650) 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: Sales Variable expenses as a percentage...
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