C | ezto.mheducator.com/hm.tpx Wingate Company, a wholesale distributor of elect

Question

C | ezto.mheducator.com/hm.tpx Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some ime, as shown by its most recent monthly contribution format income statement, which follows Sales Variable expenses 596,710 Contribution margin Fixed expenses 910,290 1,001,000 Net operating income (loss) s (90,710) 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 East Cntal West $387,000 $600,000 $520,000 Sales Variable expenses as a percentage of sales Traceable fixed expenses 53% 28% 43% $282,000 $338,000 $206,000 Required: 1. Prepare a contribution format income statement segmented by divisions, as desired by the president. Division Total Company East Central West 2-a As a result of a marketing study the president belleves that sales in the West Division could be increased by 11% if monthly advertising in that division were increased by S20000. Calculate the incremental net operating income Incremental net operating income 2-b Would you recommend the increased advertising?

Explanation / Answer

total company East Central West Sales 1,507,000 387,000 600,000 520,000 less variable cost 596,710 205110 168000 223600 contribution margin 910,290 181,890 432,000 296,400 less traceable fixed exense 826,000 282,000 338,000 206,000 segment margin 84,290 -100,110 94,000 90,400 less allocated fixed cost 175000 net operating income(loss) -90,710 2-a) increase in contribution (520,000*11%*57%)= 32604 less increase in advertising 20,000 incremental net operating income 12,604 2b) yes

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