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) $ 1,565,000 552,500 1,012,500 1,114,000 $ (101,500) 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 Variable expenses as a percentage of sales Traceable fixed expenses East $355,000 54% $ 292,000 Division Central $ 680,000 25% $323,000 West $530,000 36% $ 205,000 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 $30,000 based on the belief that it would increase that division's sales by 11%. 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? 7. What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)? Difference of Variable Costing and Absorption Costing Net Operating Income (Losses) Variable costing net operating income (loss) $ 24,000 (56,000) 80,000 Absorption costing net operating income (loss) $ Diego Company manufactures one product that is sold for $79 per unit in two geographic regionsthe East and West regions. The following information pertains to the company's first year of operations in which it produced 50,000 units and sold 45,000 units. Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense $ $ $ $ 8 29 16 2 4 $ 800,000 $ 516,000 The company sold 35,000 units in the East region and 10,000 units in the West region. It determined that $240,000 of its fixed selling and administrative expense is traceable to the West region, $190,000 is traceable to the East region, and the remaining $86,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product. 14. Diego is considering eliminating the West region because an internally generated report suggests the region's total gross margin in the first year of operations was $80,000 less than its traceable fixed selling and administrative expenses. Diego believes that if it drops the West region, the East region's sales will grow by 3% in Year 2. Using the contribution approach for analyzing segment profitability and assuming all else remains constant in Year 2, what would be the profit impact of dropping the West region in Year 2? Profit will by 15. Assume the West region invests $40,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If all else remains constant, what would be the profit impact of pursuing the advertising campaign? Profit will
