Question
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
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 | $ | 1,000,000 | |
Variable expenses | 390,000 | ||
Contribution margin | 610,000 | ||
Fixed expenses | 625,000 | ||
Net operating income (loss) | $ | (15,000 | ) |
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 | $ | 250,000 | $ | 400,000 | $ | 350,000 | ||||
Variable expenses as a percentage of sales | 52 | % | 30 | % | 40 | % | ||||
Traceable fixed expenses | $ | 160,000 | $ | 200,000 | $ | 175,000 | ||||
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 $15,000 based on the belief that it would increase that division's sales by 20%. 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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