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 | $ | 1,582,000 |
Variable expenses | 603,920 | |
Contribution margin | 978,080 | |
Fixed expenses | 1,076,000 | |
Net operating income (loss) | $ | (97,920) |
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 | $ | 392,000 | $ | 610,000 | $ | 580,000 | |||
Variable expenses as a percentage of sales | 51 | % | 32 | % | 36 | % | |||
Traceable fixed expenses | $ | 291,000 | $ | 321,000 | $ | 199,000 | |||
Prepare a contribution format income statement segmented by divisions.
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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 15%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented? (Do not round intermediate calculations.)
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Would you recommend the increased advertising?
Yes or No
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