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 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 percentage of sales Traceable fixed expenses Division Central $670,000 2 74 $324,000 East $443,000 47 $289,000 $196,000 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 $29,000 based on the belief that it would increase that division's sales by 14%. 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

Soll A Compribution formal income Statement Segmented by divisions is prepared as follows: Joey Dirision Total East Central | west $1703,000 $443.000 $670,000 $590,000 (577910) (208210) (180,900) (188,800) - Sales lexi Variable Expenses Contribution Margin $1,125090 $234,790 $489,100 $401,200 lessi Traceable fixed Exbeusel (809,000)|(289,000)| (324,000)| (196,000) less-Nontraceablefixeel Expensel (429,000)| - Net operating Incomelless) $ (112910) $(54.210) $165,100 $ 205,200_ CALES Sod. (2) (a) The incremental net operating income given - the situation would be the increase in Contribution margin less the additional mouthely advertising وملاحة $56.168 Increase in Contribution Margin ($ 401,200 x 14% ) less: Additional Advertising Expense Incremental income $29,000) $27,168 Sol. (2) (6) It is recommended to increase advertising because of an incremental income of $27, 268