Question

een experiencing losses for some time, as shown by its most recent monthly contribution format income statement: Sales $ 1,589,000 Variable expenses 616,020 Contribution margin 972,980 Fixed expenses 1,070,000 Net operating income (loss) $ (97,020) 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 $ 369,000 $ 700,000 $ 520,000 Variable expenses as a percentage of sales 58 % 24 % 45 % Traceable fixed expenses $ 292,000 $ 332,000 $ 207,000 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 sales by 18%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented

Answer 1

Wingate Company

1. Contribution format Income Statement segmented by divisions:

Division East Central West Company

Sales $ 369,000 $ 700,000 $ 520,000 $1,589,000

Variable expenses 214,020 168,000 234,000 616,020

Contribution margin 154,980 532,000 286,000 972,980

Traceable fixed expenses 292,000 332,000 207,000 831,000

Segment income (loss) (137,020) 200,000 79,000 141,980

Non-traceable fixed costs 239,000

Net operating income (loss) ($97,020)

2-a. Contribution format Income Statement segmented by divisions:

Division East Central West Company

Sales $ 369,000 $ 700,000 $ 613,600 $1,682,600

Variable expenses 214,020 168,000 276,120 658,140

Contribution margin 154,980 532,000 337,480 1,024,460

Traceable fixed expenses 292,000 332,000 228,000 852,000

Segment income (loss) (137,020) 200,000 109,480 172,460

Non-traceable fixed costs 239,000

Net operating income (loss) ($66,540)

2-b. The net operating loss decreased from $97,020 to $66,540, a difference of $30,480.

Step-by-step explanation:

a) Data and Calculations:

Wingate's most recent monthly

Contribution-format Income Statement:

Sales $ 1,589,000

Variable expenses 616,020

Contribution margin 972,980

Fixed expenses 1,070,000

Net operating income (loss) $ (97,020)

Additional information:

Division East Central West

Sales $ 369,000 $ 700,000 $ 520,000

Variable expenses 214,020 168,000 234,000

as a percentage of sales 58 % 24 % 45 %

Traceable fixed expenses $ 292,000 $ 332,000 $ 207,000

West Division's:

Sales increased to $613,600 ($520,000 * 1.18)

Variable costs increased to $276,120 ($234,000 * 1.18)

Contribution margin increased to $337,480 ($286,000 * 1.18)

Segment income increased by $30,480 ($109,480 - $79,000)

Fixed cost increased to $228,000 ($207,000 + $21,000)

Change in net operating income (loss):

Before ($97,020)

After ($66,540)

Decrease $30,480