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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 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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