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 | $ | 1,557,000 |
Variable expenses | 532,060 | |
Contribution margin | 1,024,940 | |
Fixed expenses | 1,127,000 | |
Net operating income (loss) | $ | (102,060) |
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 | $ | 387,000 | $ | 620,000 | $ | 550,000 | |||
Variable expenses as a percentage of sales | 58 | % | 23 | % | 30 | % | |||
Traceable fixed expenses | $ | 275,000 | $ | 332,000 | $ | 200,000 | |||
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 $21,000 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?