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

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Accounting

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 $ 1,645,000 Variable expenses 549,100 Contributionmargin 1,095,900 Fixed expenses 1,205,000 Net operating income(loss) $ (109,100) In an effort to isolate the problem, thepresident has asked for an income statement segmented by division.Accordingly, the Accounting Department has developed the followinginformation: Division East Central West Sales $ 395,000 $ 670,000 $580,000 Variable expenses as a percentage of sales 52 % 21 % 35 %Traceable fixed expenses $ 255,000 $ 336,000 $ 191,000 Required: 1.Prepare a contribution format income statement segmented bydivisions, as desired by the president. 2-a. As a result of amarketing study, the president believes that sales in the WestDivision could be increased by 15% if monthly advertising in thatdivision were increased by $25,000. Calculate the incremental netoperating income. 2-b. Would you recommend the increasedadvertising? Yes No rev: 07_08_2014_QC_50927

Answer & Explanation Solved by verified expert
3.6 Ratings (475 Votes)

a)             Division                    
total East Central West
company
Sales 1,645,000 395,000 670,000 580,000
less variable expense 549,100 205400 140700 203000
Contribution margin 1,095,900 189,600 529,300 377,000
Traceable fixed expense 782,000 255,000 336,000 191,000
Divisional segment margin 313,900 -65,400 193,300 186,000
common fixed expenses not traceable to divisions 423,000
net operating loss -109,100
b)
increase in contribution 580,000*15%*65%= 56550
less increase in advertising 25,000
net operating income increases by 31,550
net operating income will increase by 31,550
c) yes

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