Exercise 6-11 Segmented Income Statement [LO6-4] Wingate Company, a wholesale distributor of electronic equipment, has been experiencing...

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Exercise 6-11 Segmented Income Statement [LO6-4]
Wingate Company, a wholesale distributor of electronicequipment, has been experiencing losses for some time, as shown byits most recent monthly contribution format income statement, whichfollows:

  Sales $ 1,598,000
  Variableexpenses 616,640
  Contributionmargin 981,360
  Fixed expenses 1,079,000
  Net operating income(loss) $ (97,640)

In an effort to isolate the problem, the president has asked foran income statement segmented by division. Accordingly, theAccounting Department has developed the following information:

Division
East Central West
  Sales $ 428,000 $ 670,000 $ 500,000
  Variable expenses asa percentage of sales 48 % 36 % 34 %
  Traceable fixedexpenses $ 298,000 $ 332,000 $ 208,000

Required:
1.
Prepare a contribution format income statement segmented bydivisions, as desired by the president.

2-a.
As a result of a marketing study, the president believes thatsales in the West Division could be increased by 18% if monthlyadvertising in that division were increased by $29,000. Calculatethe incremental net operating income.

2-b. Would you recommend theincreased advertising?
No
Yes

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Requirement 1

	East	Central	West	TOTAL
Sales	$ 428,000.00	$ 670,000.00	$ 500,000.00	$ 1,598,000.00
Variable expenses	$ 205,440.00	$ 241,200.00	$ 170,000.00	$ 616,640.00
Contribution margin	$ 222,560.00	$ 428,800.00	$ 330,000.00	$ 981,360.00
Traceable fixed expenses	$ 298,000.00	$ 332,000.00	$ 208,000.00	$ 838,000.00
Segment Margin	$ (75,440.00)	$ 96,800.00	$ 122,000.00	$ 143,360.00
Common Fixed expenses				$ 241,000.00
Net Operating Income (Loss)				$ (97,640.00)

Requirement 2 ‘a’

	East	Central	West	TOTAL
Sales	$ 428,000.00	$ 670,000.00	$ 590,000.00	$ 1,688,000.00
Variable expenses	$ 205,440.00	$ 241,200.00	$ 200,600.00	$ 647,240.00
Contribution margin	$ 222,560.00	$ 428,800.00	$ 389,400.00	$ 1,040,760.00
Traceable fixed expenses	$ 298,000.00	$ 332,000.00	$ 237,000.00	$ 867,000.00
Segment Margin	$ (75,440.00)	$ 96,800.00	$ 152,400.00	$ 173,760.00
Common Fixed expenses				$ 241,000.00
Net Operating Income (Loss)				$ (67,240.00)
Earlier Net Operating Income (Loss)				$ (97,640.00)
Incremental Net Operating Income				$ 30,400.00

Requirement 2 ‘b’

YES, the increased advertising is RECOMMEDNED because the Incremental Net Operating Income is POSITIVE as Net Operating Loss is reducing by $ 30,400.

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