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 | $ 1,493,000 |
---|---|
Variable expenses | 512,300 |
Contribution margin | 980,700 |
Fixed expenses | 1,079,000 |
Net operating income (loss) | $ (98,300) |
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 | $ 353,000 | $ 620,000 | $ 520,000 |
Variable expenses as a percentage of sales | 50% | 29% | 30% |
Traceable fixed expenses | $ 262,000 | $ 330,000 | $ 206,000 |
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 $25,000 based on the belief that it would increase that division's sales by 13%. 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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