Wingate Company, a wholesale distributor of electronic equipment, has been exper
ID: 2605495 • 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
Total
East
Central
West
Sales
1546000
376000
660000
510000
Variable Expenses
559260
191760
158400
209100
Contribution Margin
986740
184240
501600
300900
Traceable Fixed expenses
766000
253000
322000
191000
Net Income
220740
(68760)
179600
109900
Other Fixed Expenses [1085000-766000]
319000
Net Operating income (loss)
(98260)
When Sales are increased, Variable cost also increase at same proportion. As a result, the contribution Margin also increases at the same proportion.
Incremental Income equals Incremental revenue (-) Increamental expenses or cost
A
West Division current Contribution Margin
300900
B=A x 13%
Increment as a result of 13% sales
39117
C
Additional expenses for increasing Sales
30000
D=B-C
Incremental Net Operating Income
9117
I would recommend the increased Advertising, because additional expenditure of $3000 on advertising is giving us additional income of $9117 (incremental earning). This also reducing effect of Bad performing East division’s Loss.
Total
East
Central
West
Sales
1546000
376000
660000
510000
Variable Expenses
559260
191760
158400
209100
Contribution Margin
986740
184240
501600
300900
Traceable Fixed expenses
766000
253000
322000
191000
Net Income
220740
(68760)
179600
109900
Other Fixed Expenses [1085000-766000]
319000
Net Operating income (loss)
(98260)
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