Question

As a result Question- 2-a: The president believes that sales in the West Division could be increased by 16% if monthly advertising in that division were increased by $25,000. Calculate the incremental net operating income.

Wingate 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, which follows: $ Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) 1,597,000 572,910 1,024,090 1,126,000 (101.910) S In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information: East Division Central $ 680,000 $ 377,000 West $540,000 Sales Variable expenses as a percentage of sales Traceable fixed expenses $ 290,008 % S 325,005 % $ 202,00€ Required: 1. Prepare a contribution format income statement segmented by divisions, as desired by the president. Sales Variable expenses Contribution margin Traceable fixed expenses Divisional segment margin Common fixed expenses not traceable to divisions Net operating loss Total Company $ 1,597,000 572,910 1,024,090 817,000 207,090 309.000 $ (101,910) East $ 377,000 162, 1107 214,890 290,000 $ (75,110) Division Central $ 680,000 238,000 442,000 325,000 $ 117,000 West S 540,000 172,800 367,200 202,000 S 165,200 2-a. As a result of a marketing study, the president believes that sales in the West Division could be increased by 16% if monthly advertising in that division were increased by $25,000. Calculate the incremental net operating income. Incremental net operating income

Answer 1

Incremental net operating income

= Incremental contribution margin - Increased fixed cost

= (367,200*16%) - 25,000

= 58,752 - 25,000

= 33,752