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 | $ | 1,618,000 |
| Variable expenses | | 546,900 |
| Contribution margin | | 1,071,100 |
| Fixed expenses | | 1,178,000 |
| Net operating income (loss) | $ | (106,900) |
|
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 | $ | 418,000 | | $ | 700,000 | | $ | 500,000 | |
| Variable expenses as a percentage of sales | | 55 | % | | 21 | % | | 34 | % |
| Traceable fixed expenses | $ | 257,000 | | $ | 333,000 | | $ | 210,000 | |
|
Required:
1. Prepare a contribution format income statement segmented bydivisions.
2-a. The Marketing Department has proposed increasing the WestDivision's monthly advertising by $24,000 based on the belief thatit would increase that division's sales by 15%. 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?
1.
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| | | Division | | Total Company | East | Central | West | | Sales | | | | | | Variable expenses | | | | | | Contribution loss | 0 | 0 | 0 | 0 | | Fixed manufacturing overhead | | | | | | 0 | $0 | $0 | $0 | | | | | | | $0 | | |
|
2.
The Marketing Department has proposed increasing the WestDivision's monthly advertising by $24,000 based on the belief thatit would increase that division's sales by 15%. Assuming theseestimates are accurate, how much would the company's net operatingincome increase (decrease) if the proposal is implemented? (Do notround intermediate calculations.)
|
| | Net operating incomewill | | by | |
|
3.
Would you recommend the increased advertising?
