Sales Variable expenses Contribution margin $ 1,555,000 601,000 954,000 1,049,000 Fixed expenses Net operating income (loss) $ (95,000) 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: East Division Central $ 620,000 39% Sales $ 355,000 West $ 580,000 35% Variable expenses as a percentage of sales Traceable fixed expenses $ 265,000 $ 337,000 $ 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 $29,000 based on the belief that would increase that division's sales by 13%. 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? 44%

Sales Variable expenses Contribution margin $ 1,555,000 601,000 954,000 1,049,000 Fixed expenses Net operating income (loss) $ (95,000) 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: East Division Central $ 620,000 39% Sales $ 355,000 West $ 580,000 35% Variable expenses as a percentage of sales Traceable fixed expenses $ 265,000 $ 337,000 $ 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 $29,000 based on the belief that would increase that division's sales by 13%. 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? 44%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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9
Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows: Total Department A Department B $ 800,000 350,000 450,000 $ 350,000 250,000 Sales $ 450,000 Variable expenses Contribution margin 100,000 100,000 350,000 Fixed expenses 400,000 140,000 260,000 Net operating income (loss) $ 50,000 $ (40,000) $ 90,000 The company says that $60,000 of the fixed expenses being charged to Department A are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department A is discontinued the sales in Department B will drop by 18%. What is the financial advantage (disadvantage) of discontinuing Department A? Multiple Choice $(103,000) $(83,000) $(92,000) $(101,000)
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