Richard Company is a distributor of electronics. The company has been making losses for some times now. This is shown in contribution format income statement as follows:

Sales $1,000,000

Variable Expenses $390,000

Contribution Margin $610,000

Fixed Expenses $625,000

Net Operating income (loss) $(15000)

With a view to solve the losses incurred, the company prepared segmented income statement. The accounting department has developed the following Division

East Central West

Sales 250000 400000 350000

Variable Expense

As % of sales 52% 30% 40%

Traceable Fixed Expenses 160000 200000 175000

Required:

1. Prepare a contribution format income statement segment by divisions.

2. A marketing department has proposed an increase in the west division monthly advertising by $18,000 based on the fact that this measures will increase the west division sales by 25%. Assuming that the estimate are accurate by how much would the company net operating income increase (decrease) if the proposal is implemented?

2b. would you recommend the increased advertising cost.

Answer rating: 100% (QA)

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