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:

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	$	1,646,000
Variable expenses		557,580
Contribution margin		1,088,420
Fixed expenses		1,197,000
Net operating income (loss)	$	(108,580)

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
Sales	$	396,000		$	650,000		$	600,000
Variable expenses as a percentage of sales		48	%		27	%		32	%
Traceable fixed expenses	$	279,000		$	323,000		$	202,000

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 $21,000 based on the belief that it would increase that division's sales by 18%. 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?

Explanation

1.

Common fixed expenses not traceable to divisions = $1,197,000 – $804,000 = $393,000.

2.

a.

Incremental West Division sales ($600,000 × 18%)	$	108,000
Contribution margin ratio ($408,000 ÷ $600,000)	×	68	%
Incremental contribution margin	$	73,440
Less incremental advertising expense		21,000
Incremental net operating income	$	52,440

2.

b.

Yes, the advertising program should be initiated.

Thanks

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $1,140,000, 46%, and $22,800, respectively.

Shannon Company segments its income statement into its North and South Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $1,140,000, 46%, and $22,800, respectively. The North Division’s contribution margin and contribution margin ratio are $190,000 and 50%, respectively. The South Division’s segment margin is $212,800. The company has $319,200 of common fixed expenses that cannot be traced to either division.

Required:

Prepare an income statement for Shannon Company that uses the contribution format and is segmented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.

Thanks

Royal Lawncare Company produces and sells two packaged products—Weedban and Greengrow. Revenue and cost information relating to the products follow:

Royal Lawncare Company produces and sells two packaged products—Weedban and Greengrow. Revenue and cost information relating to the products follow:

	Product
	Weedban		Greengrow
Selling price per unit	$	12.00	$	34.00
Variable expenses per unit	$	2.50	$	11.00
Traceable fixed expenses per year	$	133,000	$	43,000

Common fixed expenses in the company total $109,000 annually. Last year the company produced and sold 43,000 units of Weedban and 22,500 units of Greengrow.

Required:

Prepare a contribution format income statement segmented by product lines.

 

Explanation

Sales:

Weedban: 43,000 units × $12.00 per unit = $516,000.

Greengrow: 22,500 units × $34.00 per unit = $765,000.

 Variable expenses:

Weedban: 43,000 units × $2.50 per unit = $107,500.

Greengrow: 22,500 units × $11.00 per unit = $247,500.

Thanks