Question

In: Accounting

Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as...

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 $ 1,586,000
Variable expenses 623,640
Contribution margin 962,360
Fixed expenses 1,059,000
Net operating income (loss) $ (96,640)

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 $ 416,000 $ 660,000 $ 510,000
Variable expenses as a percentage of sales 54 % 28 % 42 %
Traceable fixed expenses $ 292,000 $ 339,000 $ 202,000

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 $24,000 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?

Solutions

Expert Solution

P.s- for question 2a.

company's net operating income increase by $11,496, if the proposal is implemented.


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