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 $20,000 based on the belief that it would increase that division's sales by 14%. 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?
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 | $ 1,644,000 |
|---|---|
| Variable expenses | 608,620 |
| Contribution margin | 1,035,380 |
| Fixed expenses | 1,139,000 |
| Net operating income (loss) | $ (103,620) |
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 | $ 444,000 | $ 650,000 | $ 550,000 |
| Variable expenses as a percentage of sales | 48% | 27% | 40% |
| Traceable fixed expenses | $ 282,000 | $ 335,000 | $ 200,000 |
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 $20,000 based on the belief that it would increase that division's sales by 14%. 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?
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