Question

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) 1,724,000 596,420 1,127,580 1,240,000 (112,420) $ 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: Sales Variable expenses as a percentage of sales Traceable fixed expenses East $ 444,000 43 % 43 % $ 282,000 Division Central $ 690,000 22% $ 333,000 West $ 590,000 43 % $ 203.000 Required: 1. Prepare a contribution format income statement segmented by divisions, as desired by the president. Division Central Total Company East West

Answer 1

Requirement: 1 Contribution format Income Statement Sales Less: Variable cost Contribution margin Less: Traceable Fixed cost Divisional segment margin Common fixed expenses Net Operating loss Total company 1724000 596420 1127580 824000 303580 416000 -112420 East 444000 190920 253080 296000 - 42920 Division Central 690000 151800 538200 333000 205200 West 590000 253700 336300 195000 141300 Requirement: 2a West Division sales Incremental sales@16% Total new sales Less : Variable cost Contribution Incremental contribution (390108 - 336300) Less: Increase in advertising expense (Fixed) Incremental net operating income or (Loss) Net Operating Income Increased by 27808 590000 94400 684400 294292 390108 53808 26000 27808 Requirement: 2b YES, As Incremental profit is $27808 with accepting the increase in advertising expenses. The Proposal is accepted