Darby Press publishes two lines of books—fiction and nonfiction. Cost and revenue data for each product line for the current month are as follows:

In addition to the costs shown, the company incurs monthly fixed costs of $260,000 common to both product lines.

Instructionsa. Prepare the company’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 percents of sales (round all percent figures to whole percents).

b. Assume that a marketing survey shows that a $50,000 monthly advertising campaign focused on either product line should increase that product line’s monthly sales by approximately $75,000. Do you recommend this additional advertising for either or both product lines? Show computations to support your conclusions.c. Management is considering expanding one of the company’s two product lines. The plan under consideration is expected to increase the sales of the expanded product line by $100,000. It is also expected to increase the traceable fixed costs of the expanded product line by 55 percent. On the basis of this information, which product line do you recommend expanding? Explain the basis for your conclusion.

Transcribed Image Text:

Sales Variable costs as a percent of sales Fixed costs traceable to product lines Product Lines Fiction Nonfiction $300,000 $800,000 60% $80,000 20% $125,000