EXERCISE 6-11 Segmented Income Statement [L06-4] 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, which follows: Sales ......... Variable expenses ......... Contribution margin ........ Fixed expenses .......... Net operating income (loss). $1,000,000 390,000 610,000 625,000 $ (15,000 In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information: Sales .............. Variable expenses as a percentage of sales ........... Traceable fixed expenses .......... ..... .. East $250,000 52% $160,000 Division Central $400,000 30% $200,000 West $350,000 40% $175,000 Required: 1. Prepare a contribution format income statement segmented by divisions, as desired by the president. 2. As a result of a marketing study, the president believes that sales in the West Division could be increased by 20% if monthly advertising in that division were increased by $15,000. Would you recommend the increased advertising? Show computations to support your answer.
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, 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? | ||||
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Bovine Company, a wholesale distributor of umbrellas, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:
| Sales | $ | 2,070,000 | |
| Variable expenses | 895,880 | ||
| Contribution margin | 1,174,120 | ||
| Fixed expenses | 1,319,000 | ||
| Operating loss | $ | (144,880 | ) |
In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Accordingly, the Accounting Department has developed the following:
| Geographic Market | |||||||||
| South | Central | North | |||||||
| Sales | $ | 607,000 | $ | 806,000 | $ | 657,000 | |||
| Variable expenses as a percentage of sales | 50 | % | 36 | % | 46 | % | |||
| Traceable fixed expenses | $ | 320,000 | $ | 480,000 | $ | 307,000 | |||
Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.
2-a. The company’s sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $32,000. Calculate the incremental net operating income.
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?
