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 | $ | 1,535,000 |
Variable expenses | 654,750 | |
Contribution margin | 880,250 | |
Fixed expenses | 968,000 | |
Net operating income (loss) | $ | (87,750) |
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 | $ | 365,000 | $ | 660,000 | $ | 510,000 | |||
Variable expenses as a percentage of sales | 45 | % | 38 | % | 47 | % | |||
Traceable fixed expenses | $ | 283,000 | $ | 323,000 | $ | 194,000 | |||
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 $27,000 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?
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