Fasteners, Inc., produces two products: zippers and buckles. Cost and revenue data for each product line for the current month are as follows:

In addition, fixed costs that are common to both product lines amount to $35,000.

Instructions
a. Prepare Fasteners, Inc.’s responsibility income statement for the current month. Report the responsibility margin for each product line and income from operations for the company as a whole. Also include columns showing all dollar amounts as percentages of sales.
b. According to the analysis performed in part a, which product line is more profitable? Should the common fixed costs be considered when determining the profitability of individual product lines? Why or why not?
c. Use the contribution margin ratios for each product line. Assume Fasteners, Inc., has $12,000 to be used for advertising one of the two product lines, with the expectation that this expenditure will result in additional sales of $40,000. Show the contribution associated with the $12,000 advertising expenditure for each product line. To which product line should the advertising bedevoted?

Transcribed Image Text:

Product Lines Zippers Buckles $135,000 $220,000 Sales Variable costs as a percentage of sales Fixed costs traceable to product lines . . . . - 20% 45% $ 90,000 $ 66,000