Wingate Company, a wholesale distributor of electronicequipment, has been experiencing losses for some time, as shown byits most recent monthly contribution format income statement, whichfollows:
Sales $ 1,624,000 Variableexpenses 618,260 Contributionmargin 1,005,740 Fixed expenses 1,106,000 Net operating income(loss) $ (100,260)
In an effort to isolate the problem, the president has asked foran income statement segmented by division. Accordingly, theAccounting Department has developed the following information:
Division
East Central West Sales $ 354,000 $ 690,000 $ 580,000 Variable expenses asa percentage of sales 49 % 30 % 41 % Traceable fixedexpenses $ 268,000 $ 323,000 $ 206,000
Required:
1. Prepare a contribution format income statement segmented bydivisions, as desired by the president.
2-a. As a result of a marketing study, the president believes thatsales in the West Division could be increased by 14% if monthlyadvertising in that division were increased by $25,000. Calculatethe incremental net operating income.
2-b. Would you recommend theincreased advertising? No Yes
Wingate Company, a wholesale distributor of electronicequipment, has been experiencing losses for some time, as shown byits most recent monthly contribution format income statement, whichfollows: |
| Sales | $ | 1,624,000 |
| Variableexpenses | 618,260 | |
| Contributionmargin | 1,005,740 | |
| Fixed expenses | 1,106,000 | |
| Net operating income(loss) | $ | (100,260) |
In an effort to isolate the problem, the president has asked foran income statement segmented by division. Accordingly, theAccounting Department has developed the following information: |
Division | |||||||||
| East | Central | West | |||||||
| Sales | $ | 354,000 | $ | 690,000 | $ | 580,000 | |||
| Variable expenses asa percentage of sales | 49 | % | 30 | % | 41 | % | |||
| Traceable fixedexpenses | $ | 268,000 | $ | 323,000 | $ | 206,000 | |||
| Required: |
| 1. | Prepare a contribution format income statement segmented bydivisions, as desired by the president. |
| 2-a. | As a result of a marketing study, the president believes thatsales in the West Division could be increased by 14% if monthlyadvertising in that division were increased by $25,000. Calculatethe incremental net operating income. |
| 2-b. | Would you recommend theincreased advertising? | ||||
|
Related questions
Wingate Company, a wholesale distributor of electronicequipment, has been experiencing losses for some time, as shown byits most recent monthly contribution format income statement:
| Sales | $ | 1,575,000 |
| Variable expenses | 582,000 | |
| Contribution margin | 993,000 | |
| Fixed expenses | 1,092,000 | |
| Net operating income (loss) | $ | (99,000) |
In an effort to resolve the problem, the company would like toprepare an income statement segmented by division. Accordingly, theAccounting Department has developed the following information:
Division | |||||||||
| East | Central | West | |||||||
| Sales | $ | 365,000 | $ | 670,000 | $ | 540,000 | |||
| Variable expenses as apercentage of sales | 50 | % | 29 | % | 38 | % | |||
| Traceable fixed expenses | $ | 290,000 | $ | 327,000 | $ | 194,000 | |||
Required:
1. Prepare a contribution format income statement segmented bydivisions.
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2-a. The Marketing Department has proposed increasing the WestDivision's monthly advertising by $23,000 based on the belief thatit would increase that division's sales by 14%. Assuming theseestimates are accurate, how much would the company's net operatingincome increase (decrease) if the proposal is implemented?
The Marketing Department has proposed increasing the WestDivision's monthly advertising by $23,000 based on the belief thatit would increase that division's sales by 14%. Assuming theseestimates are accurate, how much would the company's net operatingincome increase (decrease) if the proposal is implemented? (Do notround intermediate calculations.
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2-b. Would you recommend the increased advertising?
