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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 1,000,000

Variable expenses . . . . . . . . . . . . . . . . . . . . . . . .            390,000

Contribution margin . . . . . . . . . . . . . . . . . . . . . . .          610,000

Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . .            625,000

Net operating income (loss) . . . . . . . . . . . . . . . .     $   (15,000)

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:

Required:

1. Prepare a contribution format income statement segmented by divisions.

2. The Marketing Department has proposed increasing the West Division’s monthly advertising by $15,000 based on the belief that it would increase that division’s sales by 20%. Assuming these estimates are accurate, how much would the company’s net operating income increase (decrease) if the proposal is implemented?

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Division East Central West Sales ..... $250,000 $400,000 $350,000 40% Variable expenses as a percentage of sales Traceable fixed expenses ... 52% 30% $160,000 $200,000 $175,000