Bula, Inc., produces two products: bottled water and coconut juice. 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 \(\$ 75,000\).
Instructions

a. Prepare Bula, 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. Bula, Inc., has \(\$ 15,000\) to be used in advertising for one of the two product lines and expects that this expenditure will result in additional sales of \(\$ 50,000\). How should the company decide which product line to advertise?

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Sales. Contribution margin as a percentage of sales. Fixed costs traceable to product lines Product Lines Bottled Water Coconut Juice $750,000 $970,000 40% 65% $175,000 $150,000