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, which follows:Sales $1,584,000Variable expenses $610,020Contribution margin $973,980Fixed expenses $1.071,000Net operating income (loss) $(97,020)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:East DivisionSales $434,000Variable expenses as a percentage of sales 53%Traceable fixed expenses $261,000Central DivisionSales $650,000Variable expenses as a percentage of sales 20%Traceable fixed expenses $357,000West DivisionSales $500,000Variable expenses as a percentage of sales 50%Traceable fixed expenses $204,0001. Prepare a contribution format income statement segmented by divisions, as desired by the president.2-a. As a result of a marketing study, the president believes that sales in the West Division could be increased by 14% if monthly advertising in that division were increased by $29,000. Calculate the incremental net operating income.2-b. Would you recommend the increased advertising?

Required 1.

Contribution format income statement

                                                                 East              Central             West

Division Sales                                    $434,000         $650,000      $500,000

Less Variable Expenses                  ($230,020)        ($130,000)     ($250,000)

Controllable Contribution                 $203,980         $520,000      $250,000

Less Controllable Fixed Costs :

Traceable fixed expenses                ($261,000)       ($357,000)     ($204,000)

Controllable Profit/(Loss)                    ($57,020)        $163,000          $46,000

Required 2.

2a. Calculation of Incremental Net Income - West Division

Incremental Sales ($500,000 × 14%)                         $70,000

Less Incremental Variable Expenses                       ($29,000)

Incremental Contribution                                            $41,000

Less Incremental Fixed Expenses                                       $0

Incremental Net Income/ (loss)                                   $41,000

2b. Recommendation

Yes. The Increase in advertising is bringing a positive contribution towards the Company`s loss.

Explanation:

The Company`s loss will reduce by $41,000 to ($56,020) due to increase in advertising.

The affect of the given items and the journal entry is shown below:

Explanation:

a. The effect of given items should be adjusted in company bank reconciliation is as follows

1. The amount of note and the interest is added

2. And, the collection fee is deducted

b. The journal entry is as follows

Cash $5,140

Miscellaneous expense $10

                    To Notes receivable $5,000

                    To Interest receivable $150

(Being the collection is recorded)