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 $21,000 based on the belief that it would increase that division's sales by 11%. 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 $ 1,587,000 Variable expenses 612,960 Contribution margin 974,040 Fixed expenses 1,071,000 Net operating income (loss) $ (96,960)

Explanation / Answer

Total East Central West Sales 1587000 387000 630000 570000 Variable expenses 612960 185760 176400 250800 Contribution margin 974040 201240 453600 319200 Traceable fxed expenses 802000 275000 336000 191000 Divisional segment margin 172040 -73760 117600 128200 Common fxed expenses not traceable to divisions 269000 Net operating loss -96960 2a Incremental sales 62700 =570000*11% Contribution margin ratio 56% Incremental contribution margin 35112 Less incremental advertising expense 21000 Incremental net operating income 14112 b Yes, the advertising program should be initiated

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