EXERCISE - Segmented Income Statement

Wingate Company, a wholesale distributor 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 $180,000 $200,000 $175,000

Required:

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.