Reference no: EM13376776

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.