Shown on the following page are responsibility income statements for Butterfield, Inc., for the month of March.

Instructions
a. The company plans to initiate an advertising campaign for one of the two products in Division 1. The campaign would cost $10,000 per month and is expected to increase the sales of whichever product is advertised by $30,000 per month. Compute the expected increase in the responsibility margin of Division 1 assuming that
(1) Product A is advertised and
(2) Product B is advertised.
b. Assume that the sales of both products by Division 1 are equal to total manufacturing capacity. To increase sales of either product, the company must increase manufacturing facilities, which means an increase in traceable fixed costs in approximate proportion to the expected increase in sales. In this case, which product line would you recommend expanding? Explain.
c. The income statement for Division 1 includes $21,000 in common fixed costs. What happens to these fixed costs in the income statement for Butterfield, Inc.?
d. Assume that in April the monthly sales in Division 2 increase to $200,000. Compute the expected effect of this change on the operating income of the company (assume no other changes in revenue or cost behavior).
e. Prepare an income statement for Butterfield, Inc., by division, under the assumption stated in part d. Organize this income statement in the format illustrated above, including columns forpercentages.

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Investment Centers Butterfield Inc. Division1 Dollars $300,000 180,000 $120,000 Division 2 Dollars $450,000 225,000 $225,000 Dollars 100% 50 50% 100% 60 40% $150,000 100% Variable costs Contribution margin Fixed costs traceable to 45,000 30 $105,000 70% divisionS .. 135,000 30 63,000 21 72.000 48 Division responsibility margin : Common fixed costs Income from operations $ 90,000 20% $ 57,000 19% $ 33,000 22% 45,000 10 $ 45,000 10% Profit Centers Division 1 Product A Product B Dollars % Dollars Dollars $300,000 100% $100,000 100% $200,000 100% 52,000 52 Sales... Variable costs Contribution margin Fixed costs traceable to 180,000 60 128,000 64 .. $120,000 40% $48,000 48% $72,000 36% 42,000 14 16,000 products Product responsibility 26,000 26 8 $ 78,000 21,000 26% $ 22,000 22% $ 56,000 28% margin Common fixed costs.······ 7 Responsibility margin for division $57,000 19%