Wingate Company, a wholesale distributer of videotapes, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement, which follows:
|
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 isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following 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
|
1) Prepare a contribution format income statement segmented by divisions, as desired by the president.
2) As a result of a marketing study, the president believes that sales in the West Division could be increased by 20% if monthly advertising in that division were increased by $15,000. Would you recommend the increased advertising? Show computations to support your answer.