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 $1,638,000
Variable expenses 679,180
Contribution margin 958,820
Fixed expenses 1,055,000
Net operating income (loss) $(96,180)
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 $408,000 $650,000 $580,000
Variable expenses as a
percentage of sales 51% 35% 42%
Traceable fixed expenses $280,000 $333,000 $204,000
Required:
1. Prepare a contribution format income statement segmented by divisions.
2. The Marketing Department has proposed increasing the West Division's monthly advertising by $25,000 based on the belief that it would increase that division's sales by 16%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented

Wingate Company

1. Contribution Format

Segmented Income Statement

For the most recent month

                                                 East            Central         West        Total

Sales                                     $408,000   $650,000   $580,000 $1,638,000

Variable expenses as a

percentage of sales              208,080      227,500      243,600      679,180

Contribution margin            $199,920   $422,500    $336,400  $958,820

Traceable fixed expenses $280,000    $333,000   $204,000    $817,000

Non-traceable fixed expenses                                                        238,000

Net income                          ($80,080)     $89,500    $132,400    ($96,180)

2. The company's net operating loss will decrease by $28,824.

Explanation:

a) Data and Calculations:

WINGATE COMPANY

Income Statement for the most recent month

Sales                                    $1,638,000

Variable expenses                   679,180

Contribution margin               958,820

Fixed expenses                   1,055,000

Net operating income (loss) $(96,180)

Division

                                                 East            Central         West        Total

Sales                                    $408,000   $650,000   $580,000  $1,638,000

Variable expenses as a

percentage of sales                   51%            35%            42%

Traceable fixed expenses $280,000   $333,000   $204,000     $817,000

Non-traceable fixed expenses                                                        238,000

West Division:

Traceable fixed costs = $229,000 ($204,000 + $25,000)

Sales revenue = $672,800 ($580,000 * 1.16)

Variable expenses = $282,576 ($672,800 *42%)

1. Contribution Format

Segmented Income Statement

For the most recent month

                                                 East            Central         West        Total

Sales                                     $408,000   $650,000   $580,000 $1,638,000

Variable expenses as a

percentage of sales              208,080      227,500      243,600      679,180

Contribution margin            $199,920   $422,500    $336,400  $958,820

Traceable fixed expenses $280,000    $333,000   $204,000    $817,000

Non-traceable fixed expenses                                                        238,000

Net income                          ($80,080)     $89,500    $132,400    ($96,180)

2. Contribution Format

Segmented Income Statement

For the most recent month

                                                 East            Central         West        Total

Sales                                     $408,000   $650,000   $672,800 $1,730,800

Variable expenses as a

percentage of sales              208,080      227,500      282,576       718,156

Contribution margin            $199,920   $422,500    $390,224 $1,012,644

Traceable fixed expenses $280,000    $333,000   $229,000  $842,000

Non-traceable fixed expenses                                                        238,000

Net income                          ($80,080)     $89,500     $161,224   ($67,356)

Decrease in net operating loss = $28,824 ($96,180 - $67,356)

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