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, which follows:

Sales	$	1,606,000
Variable expenses		636,660
Contribution margin		969,340
Fixed expenses		1,066,000
Net operating income (loss)	$	(96,660)

In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information:

	Division
	East			Central			West
Sales	$	366,000		$	680,000		$	560,000
Variable expenses as a percentage of sales		51	%		25	%		50	%
Traceable fixed expenses	$	277,000		$	323,000		$	197,000

Required:

1.	Prepare a contribution format income statement segmented by divisions, as desired by the president.

2-a.	As a result of a marketing study, the president believes that sales in the West Division could be increased by 20% if monthly advertising in that division were increased by $25,000. Calculate the incremental net operating income.

2-b.	Would you recommend the increased advertising?
	Yes No

How do you find common fixed expenses?

1. Prepare a contribution format income statement segmented by divisions, as desired by the president Division Total Company East Central West Sales 366,000 $ 680,000 1,606,000 560,000 Variable expenses 636,660 186,660 170,000 280,000 Contribution margin 969,340 179,340 280,000 510,000 Traceable fixed expenses 797,000 277,000 323,000 197,000 (97,660) 187,000$ Divisional segment margin 83,000 172,340 Common fixed expenses not traceable to divisions Net operating loss 172,340 $ 2- As a result of a marketing study, the president believes that sales in the West Division a. could be increased by 20% if monthly advertising in that division were increased by $25,000. Calculate the incremental net operating income. 31,000 Incremental net operating income