Wingate Company, a wholesale distributor of electronic equipment, has been exper

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:

  

  

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:

  

Division

  

Prepare a contribution format income statement segmented by divisions, as desired by the president.

        

As a result of a marketing study, the president believes that sales in the West Division could be increased by 15% if monthly advertising in that division were increased by $23,000. 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:

Explanation / Answer

Yes, the advertising program should be initiated.

1 Total Company East Central West Sales 1661000 441000 650000 570000 Variable expenses 739370 251370 260000 228000 Contribution margin 921630 189630 390000 342000 Traceable fixed expenses 824000 293000 329000 202000 Divisional segment margin 97630 -103370 61000 140000 Common fixed expenses not traceable to divisions 190000 Net operating loss -92370 2a Incremental sales 85500 =570000*15% Contribution margin ratio 60% Incremental contribution margin 51300 Less incremental advertising expense 23000 Incremental net operating income 28300 b

Yes, the advertising program should be initiated.

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