Exercise - Segmented Income Statement
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
|
$1,610,000
|
|
Variable expenses
|
724,900
|
|
Contribution margin
|
885,100
|
|
Fixed expenses
|
974,000
|
|
Net operating income (loss)
|
$(88,9000)
|
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
|
$370,000
|
$650,000
|
$590,000
|
|
Variable expenses as a percentage of sales
|
59%
|
38%
|
44%
|
|
Traceable fixed expenses
|
$257,000
|
$327,000
|
$208,000
|
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 $21,000 based On the belief that it would increase that division's sates by 14%. 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?