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 | $ 1,520,000 |
---|---|
Variable expenses | 600,500 |
Contribution margin | 919,500 |
Fixed expenses | 1,011,000 |
Net operating income (loss) | $ (91,500) |
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:
Division | ||||
---|---|---|---|---|
East | Central | West | ||
Sales | $ 390,000 | $ 620,000 | $ 510,000 | |
Variable expenses as a percentage of sales | 55% | 31% | 38% | |
Traceable fixed expenses | $ 259,000 | $ 326,000 | $ 198,000 |
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 $29,000 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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started