Wingate Company a wholesale distributor of electronic equipm

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, which follows Sales Variable expenses $ 1,546,000 559,260 Contribution margin Fixed expenses 986,740 1,085,000 Net operating income (loss) $ (98,260) In an effort to isolate the problem, the president has asked for an income statement segmented by division Accordingly, the Accounting Department has developed the following information Division Central $376,000 $660,000 $510,000 East West Sales Variable expenses as a percentage of sales Traceable fixed expenses 51% 24% 41% $253,000 $322,000 $191,000 Required 1. Prepare a contribution format income statement segmented by divisions, as desired by the president. Division Total Company East Central West

Solution

Answer

Division

Total Company

East

Central

West

Sales

1,546,000

376,000

660,000

510,000

Variable Expenses

559,260

191,760

158,400

209,100

Contribution Margin

986,740

184,240

501,600

300,900

Traceable Fixed Expenses

766,000

253,000

322,000

191,000

Divisional segment margin

220,740

(68,760)

179,600

109,900

Common fixed Expenses not traceable to Divisions

319,000

Net Operating Loss

(98,260)

2-a

Increase in Sales = = (510,000*13%) = 66,300

Increase in Variable expenses = 41% of Increase in Sales

= 66,300 * 41%

= 27,183

Incremental Net operating income = Increase in Sales – Increase In Variable expenses – Advertisement expenses

= 66,300 - 27,183 – 30,000

Incremental Net operating income = $9,117

2-b

Yes, As there is a net increase in Income by $9,117, so Increase in Advertisement is beneficial for the company, so we Recommend the increased Advertising

		Division
	Total Company	East	Central	West
Sales	1,546,000	376,000	660,000	510,000
Variable Expenses	559,260	191,760	158,400	209,100
Contribution Margin	986,740	184,240	501,600	300,900
Traceable Fixed Expenses	766,000	253,000	322,000	191,000
Divisional segment margin	220,740	(68,760)	179,600	109,900
Common fixed Expenses not traceable to Divisions	319,000
Net Operating Loss	(98,260)