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 Variable expenses Contribution margin Fixed expenses $ 1,000,000 390,000 610,000 625,000 $ (15,000) Net operating income (loss) 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 $ 250,000 $ 400,000 30% Sales $ 350,000 Variable expenses as a percentage of sales Traceable fixed expenses 52% 40% $ 160,000 $ 200,000 $ 175,000 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 $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? 2-b. Would you recommend the increased advertising?
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 Variable expenses Contribution margin Fixed expenses $ 1,000,000 390,000 610,000 625,000 $ (15,000) Net operating income (loss) 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 $ 250,000 $ 400,000 30% Sales $ 350,000 Variable expenses as a percentage of sales Traceable fixed expenses 52% 40% $ 160,000 $ 200,000 $ 175,000 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 $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? 2-b. Would you recommend the increased advertising?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need the answer to 2A.
Transcribed Image Text:**Wingate Company: Contribution Format Income Statement Analysis**
*Background*
Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses, as shown by its most recent monthly contribution format income statement:
- **Sales**: $1,000,000
- **Variable expenses**: $390,000
- **Contribution margin**: $610,000
- **Fixed expenses**: $625,000
- **Net operating income (loss)**: $(15,000)
To address the issue, the company plans to prepare a division-segmented income statement. The Accounting Department provides the following division-specific information:
| Division | East | Central | West |
|----------|-------|---------|-------|
| **Sales** | $250,000 | $400,000 | $350,000 |
| **Variable expenses as a percentage of sales** | 52% | 30% | 40% |
| **Traceable fixed expenses** | $160,000 | $200,000 | $175,000 |
*Required Tasks*
1. **Prepare a Contribution Format Income Statement by Division**:
- Analyze and segment the income statement for each division based on the given sales, variable expenses, and fixed expenses.
2. **West Division Advertising Proposal**:
- **2-a**. Evaluate the Marketing Department's proposal to increase the West Division's monthly advertising by $15,000, which is anticipated to boost the division's sales by 20%. Calculate the potential change in net operating income if the proposal is implemented.
- **2-b**. Recommend whether the proposed increase in advertising should be adopted, based on the analysis.
This exercise will help in understanding the financial impact of segmenting income statements and evaluating marketing strategies on company performance.
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