Question

Exercise 6-11 Segmented Income Statement (L06-4) 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: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) $ 1,665,000 544,050 1,120,950 1,233,000 $ (112,050) 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: Sales Variable expenses as a percentage of sales Traceable fixed expenses East $415,000 53% $293,000 Division Central $690,000 21% $334,000 West $560,000 32% $190,000 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 $27,000 based on the belief that it would increase that division's sales by 10%. 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Reg 2B Prepare a contribution format income statement segmented by divisions. Division Central Total Company East West

Answer 1

1
		Division
	Total Company	East	Central	West
Sales	1665000	415000	690000	560000
Variable expenses	544050	219950	144900	179200
Contribution margin	1120950	195050	545100	380800
Traceable fixed expenses	817000	293000	334000	190000
Divisional segment margin	303950	-97950	211100	190800
Common fixed expenses not traceable to divisions	416000
Net operating loss	(112050)
2a
Incremental West Division sales	56000	=560000*10%
X Contribution margin ratio	68%	=1-32%
Incremental contribution margin	38080
Less incremental advertising expense	27000
Net operating income increase	11080
b
Yes, the advertising program should be initiated.