Answer:
Required 1.
<u>Contribution format income statement</u>
East Central West
Division Sales $434,000 $650,000 $500,000
Less Variable Expenses ($230,020) ($130,000) ($250,000)
Controllable Contribution $203,980 $520,000 $250,000
Less Controllable Fixed Costs :
Traceable fixed expenses ($261,000) ($357,000) ($204,000)
Controllable Profit/(Loss) ($57,020) $163,000 $46,000
Required 2.
<u>2a. Calculation of Incremental Net Income - West Division</u>
Incremental Sales ($500,000 × 14%) $70,000
Less Incremental Variable Expenses ($29,000)
Incremental Contribution $41,000
Less Incremental Fixed Expenses $0
Incremental Net Income/ (loss) $41,000
<u>2b. Recommendation</u>
Yes. The Increase in advertising is bringing a positive contribution towards the Company`s loss.
Explanation:
The Company`s loss will reduce by $41,000 to ($56,020) due to increase in advertising.
