Question

Exercise 6-11 Segmented Income Statement (LO6-4] 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 (loss) $ 1,645,000 643,600 1,001,400 1,102,000 $ (100,600) 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 of sales Traceable fixed expenses East $385,000 52% $257,000 Division Central $690,000 37% $333,000 West $570,000 33% $203,000 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 $24,000 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

Statement showing Computations
Particulars	East	Central	West	Total
Sales	385,000.00	690,000.00	570,000.00	1,645,000.00
Less Variable Expenses	200,200.00	255,300.00	188,100.00	643,600.00
Contribution Margin	184,800.00	434,700.00	381,900.00	1,001,400.00
Traceable Fixed cost	257,000.00	333,000.00	203,000.00	793,000.00
Segment Income	(72,200.00)	101,700.00	178,900.00	208,400.00
Common Fixed costs				309,000.00
Net operating income (Loss)				(100,600.00)
2-a
Particulars	East	Central	West	Total
Sales	385,000.00	690,000.00	649,800.00	1,724,800.00
Less Variable Expenses	200,200.00	255,300.00	214,434.00	669,934.00
Contribution Margin	184,800.00	434,700.00	435,366.00	1,054,866.00
Traceable Fixed cost	257,000.00	333,000.00	227,000.00	817,000.00
Segment Income	(72,200.00)	101,700.00	208,366.00	237,866.00
Common Fixed costs				309,000.00
Net operating income (Loss)				(71,134.00)
Change in NOI = -100,600- (-71,134)	29,466.00
NOI would increase by $29,466 as a result of this decision
2-b
Yes since NOI would increase by $29,466