A contribution format income statement for the most recent year for Big Bear Consumer Electronics Inc. is shown below.

		Total Department			AM/FM radios		HD radios
Sales		$320,000	100%		$270,000	100%	$50,000	100%
Less variable expenses		236,000	74%		216,000	80%	20,000	40%
Contribution Margin		84,000	26%		54,000	20%	30,000	60%
Less Traceable Fixed Expenses		15,000	5%		10,000	4%	5,000	10%
Segment Margin		69,000	22%		$44,000	16%	$25,000	50%
Less Common Fixed Expenses		40,000	13%
Net Operating Income		$29,000	9%

PROBLEM BACKGROUND:

Shortly after graduating with a business degree from Bridgewater State University, you are hired as an assistant to the District Manager of a national consumer electronics chain.

During your first day on the job, you attend a meeting regarding product lines carried by the chain. You learn about a fairly new innovation called HD (high definition) radio. This product allows consumers to listen to not only traditional AM and FM bands, but also to the newly created HD frequencies that most local radio stations are broadcasting free of charge to listeners on adjacent frequencies that previously were unused. Unlike satellite radio, this service requires no subscription charges. Consumers who have heard HD radio tell you that AM-HD broadcasts sound like FM and FM-HD broadcasts sound like CD quality!

Due to improved manufacturing technologies, the cost to manufacture HD radios has dropped dramatically.

PROBLEM:

Your boss (the District Manager) has authorized you to spend $10,000 for advertising for one of your chain