a special-order basis? Existing FunTime Company produces three lines of greeting cards: scented, musical, and regular ble 3. What would the effect be on firm prohts produced (using existing capacity) and sold for $21.50 on a sales would be unaffected by the special order. Problem 8-56 Segmented Income Statement, Management Decision Making Segmented income statements for the past year are as follows: Scented Musical Regular Total $10,000 $15,000 $25,000 $50,000 Sales 7.000 12,000 12,500 31,500 Less: Variable expenses $ 3.000 $ 3.000 $12,500 Contribution margin $18,500 4,000 Less: Direct fixed expenses 5,000 3,000 12,000 Segment margin $(1.000) $(2.000) $ 9,500 $6,500 Less: Common fixed expenses 7,500 Operating income (loss) $(1,000) Kathy Bunker, president of FunTime, is concerned about the financial performance of her firm and is seriously considering dropping both the scented and musical product lines. However, before making a final decision, she consults Jim Dorn, FunTime's vice president of marketing. Required: 1. CONCEPTUAL CONNECTION Jim believes that by increasing advertising by $1,000 ($250 for the scented line and $750 for the musical line), sales of those two lines would increase by 30%. If you were Kathy, how would you react to this information? 2. CONCEPTUAL CONNECTION Jim warns Kathy that eliminating the scented and musical lines would lower the sales of the regular line by 20%. Given this information, would it be profitable to eliminate the scented and musical lines? 3. CONCEPTUAL CONNECTION Suppose that eliminating either line reduces sales of the regular cards by 10%. Would a combination of increased advertising (the option described in Requirement 1) and eliminating one of the lines be beneficial? Identify the best combination for the firm. Problem 8-57 Make or Buy, Qualitative Considerations Hetrick Dentistry Services operates in a large metropolitan area. Currently, Hetrick has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce the crowns are as follows: Raw materials Direct labor ... Porcelain Gold $ 70 27 27 $130