Wingate Company, a wholesale distributor of electronic equipment, has been exper
ID: 2605493 • Letter: W
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 Sales Variable expenses $ 1,546,000 559,260 Contribution margin Fixed expenses 986,740 1,085,000 Net operating income (loss) $ (98,260) 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 Central $376,000 $660,000 $510,000 East West Sales Variable expenses as a percentage of sales Traceable fixed expenses 51% 24% 41% $253,000 $322,000 $191,000 Required 1. Prepare a contribution format income statement segmented by divisions, as desired by the president. Division Total Company East Central WestExplanation / Answer
Answer
Division
Total Company
East
Central
West
Sales
1,546,000
376,000
660,000
510,000
Variable Expenses
559,260
191,760
158,400
209,100
Contribution Margin
986,740
184,240
501,600
300,900
Traceable Fixed Expenses
766,000
253,000
322,000
191,000
Divisional segment margin
220,740
(68,760)
179,600
109,900
Common fixed Expenses not traceable to Divisions
319,000
Net Operating Loss
(98,260)
2-a
Increase in Sales = = (510,000*13%) = 66,300
Increase in Variable expenses = 41% of Increase in Sales
= 66,300 * 41%
= 27,183
Incremental Net operating income = Increase in Sales – Increase In Variable expenses – Advertisement expenses
= 66,300 - 27,183 – 30,000
Incremental Net operating income = $9,117
2-b
Yes, As there is a net increase in Income by $9,117, so Increase in Advertisement is beneficial for the company, so we Recommend the increased Advertising
Division
Total Company
East
Central
West
Sales
1,546,000
376,000
660,000
510,000
Variable Expenses
559,260
191,760
158,400
209,100
Contribution Margin
986,740
184,240
501,600
300,900
Traceable Fixed Expenses
766,000
253,000
322,000
191,000
Divisional segment margin
220,740
(68,760)
179,600
109,900
Common fixed Expenses not traceable to Divisions
319,000
Net Operating Loss
(98,260)
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