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:

Sales	$	1,617,000
Variable expenses		586,830
Contribution margin		1,030,170
Fixed expenses		1,133,000
Net operating income (loss)	$	(102,830)

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
	East			Central			West
Sales	$	447,000		$	640,000		$	530,000
Variable expenses as a percentage of sales		49	%		26	%		38	%
Traceable fixed expenses	$	253,000		$	326,000		$	198,000

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 $22,000 based on the belief that it would increase that division's sales by 12%. 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?

Answer 1

1)	Wingate Company
	Contribution Margin Income Statement
		East	Central	West	Total
	Sales=(A)	$    4,47,000.00	$ 6,40,000.00	$ 5,30,000.00	$ 16,17,000.00
(*)	Variable Expenses=(B)	$    2,19,030.00	$ 1,66,400.00	$ 2,01,400.00	$    5,86,830.00
	Traceable Fixed Expenses=(C )	$    2,53,000.00	$ 3,26,000.00	$ 1,98,000.00	$    7,77,000.00
	Segment/ division Margin=(D )=(A)-(B)-(C )	$      -25,030.00	$ 1,47,600.00	$ 1,30,600.00	$    2,53,170.00
(**)	Common Fixed Expenses=(E )				$    3,56,000.00
	Net Income/Loss=(D )-(E )				$ -1,02,830.00
(*)	Variable Expenses as a % of Sales
	East Division	($447000*49%)
	Central Division	($640000*26%)
	West Division	($530000*38%)
(**)
	Total Fixed Expenses	$ 11,33,000.00
	Less: Traceable Fixed Expenses	$    7,77,000.00
	Common Fixed Expenses	$    3,56,000.00
	Wingate Company
2(a)	Contribution Margin Income Statement
		East	Central	West	Total
	Sales=(A)	$    4,47,000.00	$ 6,40,000.00	$ 5,93,600.00	$ 16,80,600.00
	Variable Expenses=(B)	$    2,19,030.00	$ 1,66,400.00	$ 2,25,568.00	$    6,10,998.00
	Traceable Fixed Expenses=(C )	$    2,53,000.00	$ 3,26,000.00	$ 2,20,000.00	$    7,99,000.00
	Segment/ division Margin=(D )=(A)-(B)-(C )	$      -25,030.00	$ 1,47,600.00	$ 1,30,600.00	$    2,70,602.00
	Common Fixed Expenses=(E)	$                       -			$    3,56,000.00
	Net Income/Loss=(D )-(E )				$      -85,398.00
2(b)	Yes,it is recommended increase advertising expenses,and its results increased sales of West Division and reduce overall Company's Net loss.
	Working
	Sales of West Division=($530000*(1+12%))
	Variable Expenses of West division=($201400*(1+12%))
	Traceable expenses of West Division=($198000+$22000)