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

Total

East

Central

West

Sales

1546000

376000

660000

510000

Variable Expenses

559260

191760

158400

209100

Contribution Margin

986740

184240

501600

300900

Traceable Fixed expenses

766000

253000

322000

191000

Net Income

220740

(68760)

179600

109900

Other Fixed Expenses [1085000-766000]

319000

Net Operating income (loss)

(98260)

When Sales are increased, Variable cost also increase at same proportion. As a result, the contribution Margin also increases at the same proportion.

Incremental Income equals Incremental revenue (-) Increamental expenses or cost

A

West Division current Contribution Margin

300900

B=A x 13%

Increment as a result of 13% sales

39117

C

Additional expenses for increasing Sales

30000

D=B-C

Incremental Net Operating Income

9117

I would recommend the increased Advertising, because additional expenditure of $3000 on advertising is giving us additional income of $9117 (incremental earning). This also reducing effect of Bad performing East division’s Loss.

	Total	East	Central	West
Sales	1546000	376000	660000	510000
Variable Expenses	559260	191760	158400	209100
Contribution Margin	986740	184240	501600	300900
Traceable Fixed expenses	766000	253000	322000	191000
Net Income	220740	(68760)	179600	109900
Other Fixed Expenses [1085000-766000]	319000
Net Operating income (loss)	(98260)