Answer:
1. ($98,560)
2a. Increase by $36,790
2b. Yes
Explanation:
1. Preparation of a contribution format income statement segmented by divisions
CONTRIBUTION FORMAT INCOME STATEMENT
East + Central + West= Total Company
Sales
$351,000 +$650,000+$550,000=$1,551,000
Less Variable expenses $196,560+$156,000+$209,000=$561,560
(56%*$351,000=$196,560)
(24%*$650,000=$156,000)
(38%*$550,000=$209,000)
Contribution margin
$154,440+$494,000+$341,000=$989,440
Traceable fixed expenses $258,000+$331,000+ $205,000=$794,000
Divisional segment margin-$103,560+$163,000 +$136,000=$195,440
($154,440-$258,000=-$103,560)
($494,000-$331,000=$163,000)
($341,000-$205,000=$136,000)
Common fixed expenses not traceable to divisions $294,000
($1,088,000-$794,000)
Net operating loss ($98,560)
($195,440-$294,000)
2a. Calculation for how much would the company's net operating income increase (decrease) if the proposal is implemented
Incremental West Division sales $104,500 ($550,000*19%)
X Contribution margin ratio 62%
(1-38%)
=Incremental contribution margin $64,790
($194,500*62%)
Less incremental advertising expense $28,000
Net operating income will increase by $36,790
($64,790-$28,000)
2b. YES, I Would recommend the increased advertising.
