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:

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:

Division

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 13%. 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?

Sales $ 1,517,000 Variable expenses 629,260 Contribution margin 887,740 Fixed expenses 977,000 Net operating income (loss) $ (89,260)

Explanation / Answer

1 Total East West Central Sales 1517000 387000 610000 520000 Variable expenses 629260 224460 170800 234000 Contribution margin 887740 162540 439200 286000 Traceable fixed expenses 822000 286000 337000 199000 Divisional segment margin. 65740 -123460 102200 87000 Common fxed expenses not traceable to divisions 155000 Net operating loss -89260 2 Incremental sales 67600 Contribution margin ratio 55% Incremental contribution margin 37180 Less incremental advertising expense 29000 Incremental operating income 8180 Yes, the advertising program should be initiated.

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