Question

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 $1,638,000
Variable expenses 679,180
Contribution margin 958,820
Fixed expenses 1,055,000
Net operating income (loss) $(96,180)
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 $408,000 $650,000 $580,000
Variable expenses as a
percentage of sales 51% 35% 42%
Traceable fixed expenses $280,000 $333,000 $204,000
Required:
1. Prepare a contribution format income statement segmented by divisions.
2. The Marketing Department has proposed increasing the West Division's monthly advertising by $25,000 based on the belief that it would increase that division's sales by 16%. 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

Segmented Income Statement

For the most recent month

East Central West Total

Sales $408,000 $650,000 $580,000 $1,638,000

Variable expenses as a

percentage of sales 208,080 227,500 243,600 679,180

Contribution margin $199,920 $422,500 $336,400 $958,820

Traceable fixed expenses $280,000 $333,000 $204,000 $817,000

Non-traceable fixed expenses 238,000

Net income ($80,080) $89,500 $132,400 ($96,180)

2. The company's net operating loss will decrease by $28,824.

Step-by-step explanation:

a) Data and Calculations:

WINGATE COMPANY

Income Statement for the most recent month

Sales $1,638,000

Variable expenses 679,180

Contribution margin 958,820

Fixed expenses 1,055,000

Net operating income (loss) $(96,180)

Division

East Central West Total

Sales $408,000 $650,000 $580,000 $1,638,000

Variable expenses as a

percentage of sales 51% 35% 42%

Traceable fixed expenses $280,000 $333,000 $204,000 $817,000

Non-traceable fixed expenses 238,000

West Division:

Traceable fixed costs = $229,000 ($204,000 + $25,000)

Sales revenue = $672,800 ($580,000 * 1.16)

Variable expenses = $282,576 ($672,800 *42%)

1. Contribution Format

Segmented Income Statement

For the most recent month

East Central West Total

Sales $408,000 $650,000 $580,000 $1,638,000

Variable expenses as a

percentage of sales 208,080 227,500 243,600 679,180

Contribution margin $199,920 $422,500 $336,400 $958,820

Traceable fixed expenses $280,000 $333,000 $204,000 $817,000

Non-traceable fixed expenses 238,000

Net income ($80,080) $89,500 $132,400 ($96,180)

2. Contribution Format

Segmented Income Statement

For the most recent month

East Central West Total

Sales $408,000 $650,000 $672,800 $1,730,800

Variable expenses as a

percentage of sales 208,080 227,500 282,576 718,156

Contribution margin $199,920 $422,500 $390,224 $1,012,644

Traceable fixed expenses $280,000 $333,000 $229,000 $842,000

Non-traceable fixed expenses 238,000

Net income ($80,080) $89,500 $161,224 ($67,356)

Decrease in net operating loss = $28,824 ($96,180 - $67,356)