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 14% if monthly advertising in that division were increased by $25,000. 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

1. Wingate Company (All amounts in $) Contribution Income Statement, segmented by location East Central West Total Sales 354000 690000 580000 1624000 Variable Expenses 49% Sales 173460 30% Sales 207000 41% Sales 237800 618260 Contribution Margin 180540 483000 342200 1005740 Traceable Fixed Expenses 268000 323000 206000 797000 Segment Profit/(Loss) -87460 160000 136200 208740 Unallocated Fixed Expenses 309000 Net Loss for the month -100260 2. Existing Sales for the West Location = $ 580,000 Increase in Sales owing to marketing campaign = $ 580,000 X 14% = $ 81,200 Advertising Costs incurred = $ 25,000 Hence, incremental net operating income will be $ 81,200 - $ 25,000 = $ 56,200 3. The increased advertising would be recommended, since owing to that, the net loss for the month is reduced by half, on account of the incremental net operating income of $ 56,200.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.