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	$	1,672,000
Variable expenses		740,640
Contribution margin		931,360
Fixed expenses		1,024,000
Net operating income (loss)	$	(92,640)

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	$	402,000		$	700,000		$	570,000
Variable expenses as a percentage of sales		62	%		36	%		42	%
Traceable fixed expenses	$	278,000		$	335,000		$	194,000

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 $30,000 based on the belief that it would increase that division's sales by 13%. 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

Sale Variabel Expenses Contribution Margin Traceable Fixed Expenses Geographic market Margin common Fixed Cost Net operating Income Total Company 1672000 740640 931360 807000 124360 217000 -92640 Geographic market Margin East Central west 402000 700000 570000 2492401 252000 2394001 152760 448000 330600 278000 335000 194000 -125240 113000 136600 2A) West Division Sales Will increase by 13% and advertisement Will increse by 30,000? Incremental income Increase in Contribution Margin 330600*13% L 42978! LESS: Increase in Fixed Cost 30,000 Incremental Net operating income 12,978 Net Operating income Will Increase by $12,978 Would you recommend the increased advertising YES