Wingate Company, a wholesale distributor of electronicequipment, has been experiencing losses for some time, as shown byits most recent monthly contribution format income statement:
| | |
| Sales | $ | 1,606,000 |
| Variable expenses | | 659,440 |
| Contribution margin | | 946,560 |
| Fixed expenses | | 1,041,000 |
| Net operating income (loss) | $ | (94,440) |
|
In an effort to resolve the problem, the company would like toprepare an income statement segmented by division. Accordingly, theAccounting Department has developed the following information:
| Division |
| East | Central | West |
| Sales | $ | 376,000 | | $ | 660,000 | | $ | 570,000 | |
| Variable expenses as a percentage of sales | | 49 | % | | 34 | % | | 44 | % |
| Traceable fixed expenses | $ | 281,000 | | $ | 336,000 | | $ | 203,000 | |
|
Required:
1. Prepare a contribution format income statement segmented bydivisions.
2-a. The Marketing Department has proposed increasing the WestDivision's monthly advertising by $25,000 based on the belief thatit would increase that division's sales by 11%. Assuming theseestimates are accurate, how much would the company's net operatingincome increase (decrease) if the proposal is implemented?
2-b. Would you recommend the increased advertising?
