Question

Exercise 6-11 (Algo) Segmented Income Statement [LO6-4]

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	$	1,587,000
Variable expenses		609,370
Contribution margin		977,630
Fixed expenses		1,075,000
Net operating income (loss)	$	(97,370)

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	$	427,000		$	650,000		$	510,000
Variable expenses as a percentage of sales		51	%		32	%		36	%
Traceable fixed expenses	$	265,000		$	340,000		$	195,000

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 $28,000 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?

Answer 1

1)		Totals	East	Central	West
	Sales	1,587,000	427,000	650,000	510,000
	Variable manufacturing and selling Expenses	609,370	217,770	208,000	183,600
	Contribution Margin	977,630	209,230	442,000	326,400
	Traceable Fixed Expenses:	800,000	265,000	340,000	195,000
	Product Line Segment Margin/(Loss)	177,630	(55,770)	102,000	131,400
	Common Fixed cost	275,000
	Net Operating Income / (Loss)	(97,370)
2)-A	Contribution statement if west advertising increased by
	Increase in contribution margin of West Division	42,432	(326400*0.13)
	Less: Advertisement Cost	(28,000)
	Net Operating income will increase by	14,432
2)-B	Yes we recommend the increased advertising