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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000
Variable expenses . . . . . . . . . . . . . . . . . . . . . . . . 390,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . 610,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 625,000
Net operating income (loss) . . . . . . . . . . . . . . . . $ (15,000)
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:
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 $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?
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