EXERCISE 611 Segmented Income Statement LO64 Wingate Company

EXERCISE 6-11 Segmented Income Statement LO6-4 Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses or some time, as shown by its most recent monthly contribution format income statement: Sales Variable expenses Contribution margin Fixed expenses.... Net operating income (loss). $1,000,000 390,000 610,000 625,000 $ (15,000) 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 . Variable expenses as a percentage of sales Traceable fixed expenses $250,000 $400,000 $350,000 30% $160,000 $200,000 $175,000 52% 40% Required: I. Prepare a contribution format income statement segmented by divisions. 2. 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? Income Statement; Reconciliation L06- 2, LO6-3 absorption cost-

Solution

Division

Particulars

Company

East

Central

West

1,000,000

       250,000

400,000

350,000

2. Variable Expenses

390,000

130,000

120,000

140,000

3.Contribution Margin (1-2)

610,000

120,000

280,000

210,000

4.Traceable Fixed Expenses

535,000

160,000

200,000

175,000

5.Net Income (3-4)

75,000

-40,000

80,000

35,000

2. As per Marketing Department Sales of west Increase by 20 %

a. Revised Sales

350000*1.2

420000

Advertising Cost

15000

b. Revised Traceable Fixed Expenses

175000+15000

190000

Revised Contribution Income format (Amount in $)

Division

Particulars

Company

East

Central

West

1,070,000

     250,000

400,000

420,000

2. Variable Expenses

418,000

    130,000

120,000

168,000

3. Contribution Margin (1-2)

652,000

120,000

280,000

252,000

4.Traceable Fixed Expenses

550,000

160,000

200,000

190,000

5. Net Income (3-4)

102,000

-40,000

80,000

62,000

Increase/(Decrease) in Net income:

A.Net Income After Proposal Implemented $

102000

B. Net Income Before Proposal$

75000

Net Increase/(Decrease) (A-B)$

27000

$27000 Net operating income increased if the proposal is implemented.

		Division
Particulars	Company	East	Central	West
Sales	1,000,000	250,000	400,000	350,000
2. Variable Expenses	390,000	130,000	120,000	140,000
3.Contribution Margin (1-2)	610,000	120,000	280,000	210,000
4.Traceable Fixed Expenses	535,000	160,000	200,000	175,000
5.Net Income (3-4)	75,000	-40,000	80,000	35,000