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	$	1,598,000
Variable expenses		616,640
Contribution margin		981,360
Fixed expenses		1,079,000
Net operating income (loss)	$	(97,640)

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	$	428,000		$	670,000		$	500,000
Variable expenses as a percentage of sales		48	%		36	%		34	%
Traceable fixed expenses	$	298,000		$	332,000		$	208,000

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 18% if monthly advertising in that division were increased by $29,000. Calculate the incremental net operating income.

2-b.

Would you recommend the increased advertising?

	No
	Yes