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Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format
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 Variable expenses Contribution margin Fixed expenses Net operating income (loss) $ 1,502,000 559,360 942,640 1,037,000 $ (94,360) 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: Sales East $ 382,000 Division Central $ 600,000 West $520,000 Variable expenses as a percentage of sales Traceable fixed expenses 48% 28% 40% $ 291,000 $ 331,000 $ 193,000 Required: 1. Prepare a contribution format income statement segmented by divisions. 2-a. The Marketing Department has proposed increasing the West Division's monthly advertising by $21,000 based on the belief that it would increase that division's sales by 13%. 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?
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