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 $ $1,587,000$

Variable expenses $727,980$

Contribution margin $859,020$

Fixed expenses $945,000$

Net operating income $($loss$)$ $ $(85,980)$

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 $ $437,000$ $ $600,000$ $ $550,000$

Variable expenses as a percentage of sales $54\%38\%48\%$

Traceable fixed expenses $ $277,000$ $ $329,000$ $ $195,000$

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 $$28,000$ based on the belief that it would increase that division's sales by $18\%.$ 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 rating: 100% (QA)

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