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 income (loss) $ 1,551,000 561,560 989, 440 1,088,000 $ (98,560) 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 $351,000 Central $650,000 West $550,000 Sales Variable expenses as a percentage of sales Traceable fixed expenses 56% $258,000 24% $331,000 38% $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 $28,000 based on the belief that it would increase that division's sales by 19%. 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Prepare a contribution format income statement segmented by divisions. Division Central Total Company East West

Answer 1

1
		Division
	Total Company	East	Central	West
Sales	1551000	351000	650000	550000
Variable expenses	561560	196560	156000	209000
Contribution margin	989440	154440	494000	341000
Traceable fixed expenses	794000	258000	331000	205000
Divisional segment margin	195440	-103560	163000	136000
Common fixed expenses not traceable to divisions	294000
Net operating loss	(98560)
2a
Incremental West Division sales	104500	=550000*19%
X Contribution margin ratio	62%	=1-38%
Incremental contribution margin	64790
Less incremental advertising expense	28000
Net operating income will increase by	36790
b
Yes, the advertising program should be initiated.