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ingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time,...

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Accounting

ingate 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 $ 1,598,000
Variable expenses 612,620
Contribution margin 985,380
Fixed expenses 1,084,000
Net operating income (loss) $ (98,620)

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 $ 408,000 $ 640,000 $ 550,000
Variable expenses as a percentage of sales 44 % 29 % 45 %
Traceable fixed expenses $ 254,000 $ 333,000 $ 202,000

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 $23,000 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?

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