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: $ Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) 1,594,000 667,700 926,300 1,019,000 (92,700) $ 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 $384,000 55% $271,000 Division Central $690,000 33% $338,000 West $520,000 44% $206,000 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 $29,000 based on the belief that it would increase that division's sales by 16%. 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?

Explanation / Answer

Total Company East Central West Sales 1594000 384000 690000 520000 Variable expenses 667700 211200 227700 228800 Contribution margin 926300 172800 462300 291200 Traceable fixed expenses 815000 271000 338000 206000 Divisional segment margin 111300 -98200 124300 85200 Common fixed expenses not traceable to divisions 204000 Net operating loss -92700 2 Incremental net operating income = (291200*16%)-29000= $17592 2b Yes

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