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 $1,635,000
Variable expenses 540,450
Contribution margin 1,094,550
Fixed expenses 1,204,000
Net operating income (loss)$(109,450)
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 $365,000 $680,000 $590,000
Variable expenses as a percentage of sales 53% 25% 30%
Traceable fixed expenses $291,000 $333,000 $208,000
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 $15,000 based on the belief that it would increase that division's sales by 20%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented?
2-B. Would you recommend the increased advertising?