Answer:
Wingate Company
1. A Contribution Format Income Statement for divisions:
2a. Increase monthly advertising for the West Division by $28,000 to increase its sales by 12%
East Central West Total
Sales $412,000 $670,000 $520,000 $1,602,000
Variable exp. 181,280 207,700 166,400 555,380
Contribution
margin $230,720 462,300 353,600 1,046,620
Fixed expenses 290,000 332,000 191,000 813,000
Non-Traceable
Fixed Expenses 338,000
Net operating Income
(loss) ($59,280) $130,300 $162,600 ($104,380)
2b. How much Company's Net Operating Income Increase (Decrease) with the implementation of the above Proposal:
Net operating income before advert = $162,600
Division's net operating income after advert = $160,366
Therefore, the company's net operating loss will increase by $2,234
Explanation:
a) Wingate Company's recent monthly contribution format Income Statement:
Sales $ 1,602,000
Variable expenses 555,380
Contribution margin 1,046,620
Fixed expenses 1,151,000
Net operating income (loss) $ (104,380)
b) Division West's Income Statement:
Sales $582,400 ($520,000 x 1.12)
Variable expenses 203,034 ($181,280 x 1.12)
Contribution margin $379,366
Fixed Expenses 219,000 ($191,000 + 28,000)
Net Operating Income $160,366
c) If sales value increases by 12%, the variable expenses will increase proportionately, unless there is an increase in the price, which will ultimately reduce demand, further depressing the sales value. This is why it is called Variable Cost. Therefore, a different result will be obtainable if the variable expenses are held constant, contrary to its behavior.
