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 $ 1,556,000 Variable expenses 591,640 Contribution margin 964,360 Fixed expenses 1,061,000 Net operating income (loss) $ (96,640) 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 $ 386,000 $ 600,000 $ 570,000 Variable expenses as a percentage of sales 44 % 38 % 34 % Traceable fixed expenses $ 297,000 $ 331,000 $ 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 $27,000 based on the belief that it would increase that division's sales by 17%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented

Answer 1

1. Image 1

2a. The company's net operating income decreases by $156,326

2b. No

Step-by-step explanation:

Please find attached solution to question 1 and 2a.

2b. No. I wouldn't recommend the increased advertising because already the company is making a loss. Moreover, with the increased advertising, the company's net operating loss further increased.