Question

Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement: Sales $ 1,608,000 Variable expenses 568,000 Contribution margin 1,040,000 Fixed expenses 1,144,000 Net operating income (loss) $ (104,000) 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 East Central West Sales $ 378,000 $ 640,000 $ 590,000 Variable expenses as a percentage of sales 55 % 24 % 35 % Traceable fixed expenses $ 255,000 $ 325,000 $ 196,000 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 $23,000 based on the belief that it would increase that division's sales by 16%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented? 2-b. Would you recommend the increased advertising?

Answer 1

Answer:(1) Divisional segment margin East ($84,900) Central $161,400,West $187,500 Total $264,000 (2) a incremental profit $10,040 (b) I would recommend the increased advertising cost

Explanation:

(1) East. Central. West. Total

Sales. 378,000 640,000. 590,000 1,608,000

Less:

Variable expenses 207,900 153,600. 206,500. 568,000

---------------- ------------ ----------------- -----------------

Contribution margin 170,100. 486,400 385,500. 1,040,000

Traceable fixed

Expenses. 255,000. 325,000. 196,000. 776,000

Divisional segment

Margin. (84,900) 161,400. 187,500. 264,000

Common fixed

Expenses not traceable

to division. 368,000

Net operating income(loss) (104,000)

Working

Expenses not traceable to division

Fixed Expenses - Total Fixed traceable fixed expenses

1,144,000 - 776,000 = 368,000

(2) a

Since the existing contribution is of west division variable expenses is $206,500

$

Incremental contribution (16% × 206,500) 33,040

Less fixed cost. 23,000

-----------------

Incremental profit. 10,040

------------------------

(b) I would recommend the increased advertising

Answer 2

Answer:

WINGGATE Company

1, Income Statement

                      East central west Total

sales          378000 640000 590000 1608000

variable cost  207900 153600 206500 568000

contribution  170100 486400 383500 1040000

     

fixed cost   255000 325000 196000 776000

net income/losses -84900 161400 187500 264000

2a.                                       West division

sales (590000*1.16)                       684400

variable costs (684400*0.35)        (239540)

contribution                                     444860

fixed costs (196000+23000)        ( 219000)

Net income or loss                          225860  increase in net income

             

b. Yes i would recommend the increase in advertising because the increase in fixed costs is less than the increase in contribution hence net income.

                       

Explanation: