In: Accounting
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?
P.s- for question 2a.
company's net operating income increase by $11,496, if the proposal is implemented.