Problem # 2 (7 points)

Golden Gate 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 $3,000,000

Variable expenses 1,200,000

Contribution margin 1,800,000

Fixed expenses 1,900,000

Net operating income (loss) (100,000)

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

East Central West

Sales $1,800,000 $700,000 $500,000

Variable expenses as a percentage of sales 30% 60% 48%

Traceable fixed expenses $1.020,000 $450,000 $350,000

Required:

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

2. The Marketing Department has proposed increasing the West Divisions monthly advertising by $25,000 based on the belief that it would increase that divisions sales by 30%. Assuming these estimates are accurate, how much would the companys net operating income increase (decrease) if the proposal is implemented.