Answer:
Wingate Company
a. Contribution format income statement segmented by divisions:
Division East Central West Total
Sales $384,000 $690,000 $600,000 $1,674,000
Variable expenses $172,800 $193,200 $222,000 588,000
Contribution margin $211,200 $496,800 $378,000 $1,086,000
Traceable fixed expenses 270,000 326,000 204,000 800,000
Non-traceable fixed expenses 395,000
Net operating income (loss) ($58,800) $170,800 $174,000 ($109,000)
b. Yes. I would recommend the increased advertising. The net operating loss reduces from $109,000 to $48,400.
Explanation:
a) Data and Calculations:
Wingate
Most recent monthly contribution format income statement:
Sales $1,674,000
Variable expenses 588,000
Contribution margin 1,086,000
Fixed expenses 1,195,000
Net operating income (loss) $(109,000)
Division East Central West
Sales $384,000 $690,000 $600,000
Variable expenses as a percentage of sales 45% 28% 37%
Traceable fixed expenses $270,000 $326,000 $204,000
b) Increase of sales by 20% and advertising by $15,000:
Division East Central West Total
Sales $384,000 $690,000 $720,000 $1,794,000
Variable expenses $172,800 $193,200 $266,400 632,400
Contribution margin $211,200 $496,800 $453,600 $1,161,600
Traceable fixed expenses 270,000 326,000 219,000 815,000
Non-traceable fixed expenses 395,000
Net operating income (loss) ($58,800) $170,800 $234,600 ($48,400)
