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 Contrbution margin Fixed expenses S 1,582,000 862,740 949,000 $ (86,260) Net operating income (loss) 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: West $422,000 $ 620,000 S 540,000 Sales Variable expenses as a percentege of sales Traceable fixed expenses 53 % 39 % 47 % $ 265.000 S 331,000 S 194,000 Required: 1. Prepare a contribution format income statement segmented by divisions, as desired by the presldent. Division Total Company East Central West 2-a. As a result of a marketing study, the president believes that sales in te West Division could be increased by 10% if monthly advertsing in at division were increased by $29,000. Calculate the incremental net operating income. I net operating income 2-b. Would you recommend the increased advertising? No Yes

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Answer 1

Requirement: 1 Contribution format Income Statement Division East Central West Total compan Sales Variable expenses as a percentage of sales Less: Variable cost Contribution margin Less: Traceable Fixed cost Divisional segment margin Common fixed expenses Net Operating loss 1582000 422000620000 540000 47% 719260 223660 241800253800 862740 198340 378200 286200 790000 265000331000194000 92200 53% 39% 4720092 72740 -6666047 159000 86260 Requirement: 2a West Division sales Incremental sales @10% Total new sales Less: Variable cost Contribution Incremental contribution (314820 286200 Less: Increase in advertising expense (Fixed) Incremental net operating income or (Loss) 540000 54000 594000 279180 314820 28620 29000 380

Requirement: 2b

NO