PROBLEM 1 - S. Miller Company has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:

Sales	$ 1,700,000
Variable expenses	750,000
Contribution margin	950,000
Fixed expenses	1,000,000
Net operating income (loss)	$ (50,000)

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:

	-------------Division------------------
	Bird	Dog	Cat
Sales	$ 400,000	$ 700,000	$ 600,000
Variable expenses as a percentage of sales	60%	30%	50%
Traceable fixed expenses	$ 250,000	$ 350,000	$ 200,000

Required:

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

2-a. The Marketing Department has proposed increasing the Cat Division's monthly advertising by $26,000 based on the belief that it would increase that division's sales by 17%. 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? Why or why not?