Question

recent monthly contribution format income statement: Sales$1,652,000 Variable expenses 628,880 Contribution margin 1,023,120 Fixed expenses 1,125,000 Net operating income (loss)$(101,880) 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 EastCentralWest Sales$422,000 $650,000 $580,000 Variable expenses as a percentage of sales 54% 26% 40% Traceable fixed expenses$268,000 $320,000 $191,000 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 $29,000 based on the belief that it would increase that division's sales by 17%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented

Answer 1

Answer:

Gatty Corporation

1. Segmented Income Statement for the most recent month

Division                                         East        Central       West       Total

Sales                                       $422,000 $650,000 $580,000  $1,652,000

Variable expenses                   227,880    169,000    232,000       628,880

Contribution margin               $194,120  $481,000  $348,000    $1,023,120

Traceable fixed expenses   $268,000 $320,000   $191,000         779,000

Common fixed expenses                                                                  346,000

Net operating income (loss) $(73,880)  $161,000   $157,000       $(101,880)

2. Assuming these estimates are accurate and implemented, the company's net operating loss of $101,880 will decrease by $69,600 to $32,280.

Explanation:

a) Data and Calculations:

GATTY Corporation

Recent monthly contribution format income statement:

Sales                                    $1,652,000

Variable expenses                  628,880

Contribution margin              1,023,120

Fixed expenses                     1,125,000

Net operating income (loss) $(101,880)

Segmented Income Statement for the most recent month

Division                                                             East           Central     West

Sales                                                            $422,000 $650,000 $580,000

Variable expenses as a percentage of sales     54%           26%          40%

Traceable fixed expenses                         $268,000 $320,000   $191,000

1. Segmented Income Statement for the most recent month

Division                                         East        Central       West       Total

Sales                                       $422,000 $650,000 $580,000  $1,652,000

Variable expenses                   227,880    169,000    232,000       628,880

Contribution margin               $194,120  $481,000  $348,000    $1,023,120

Traceable fixed expenses   $268,000 $320,000   $191,000         779,000

Common fixed expenses                                                                  346,000

Net operating income (loss) $(73,880)  $161,000   $157,000       $(101,880)

Segmented Income Statement for the most recent month

Division                                         East        Central       West       Total

Sales                                       $422,000 $650,000 $678,600   $1,750,600

Variable expenses                   227,880    169,000    232,000       628,880

Contribution margin               $194,120  $481,000  $446,600     $1,121,720

Traceable fixed expenses   $268,000 $320,000  $220,000       808,000

Common fixed expenses                                                                 346,000

Net operating income (loss) $(73,880)   $161,000 $226,600      $(32,280)

$(101,880)

$(32,280)

$69,600