All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores.

The marketing manager of Drexel-Hall is considering two alternative advertising strategies, each of which would cost $15,000 per month. One strategy is to advertise the name Drexel-Hall, which is expected to increase the monthly sales at all stores by 5 percent. The other strategy is to emphasize the low prices available at Store 2, which is expected to increase monthly sales at Store 2 by $150,000, but to reduce sales by $30,000 per month at Stores 1 and 3.

Determine the expected effect of each strategy on the companys overall income from operations.

% Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs: committed Store responsibility margin Common fixed costs Income from operations Dollars $1,800,000 1,080,000 $ 720,000 432,000 $ 288,000 180,000 $ 108,000 36,000 $ 72,000 100% 60 40% 24 16% 10 Dollars $600,000 372,000 $228,000 120,000 $108,000 48,000 $ 60,000 100% 62 38% 20 18% 8 Dollars $600,000 378,000 $ 222,000 102,000 $120,000 66,000 $ 54,000 100% 63 37% 17 20% 11 Dollars $600,000 330,000 $ 270,000 210,000 $ 60,000 66,000 $ (6,000 100 % 55 45 35 10 % 11 6% 10% 9% (1) 2 4% All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores. The marketing manager of Drexel-Hall is considering two alternative advertising strategies, each of which would cost $15,000 per month. One strategy is to advertise the name Drexel-Hall, which is expected to increase the monthly sales at all stores by 5 percent. The other strategy is to emphasize the low prices available at Store 2, which is expected to increase monthly sales at Store 2 by $150,000, but to reduce sales by $30,000 per month at Stores 1 and 3. Determine the expected effect of each strategy on the company's overall income from operations. Strategy 1 expected Strategy 2 expected increase increase in monthly income from operations in monthly income from operations % Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs: committed Store responsibility margin Common fixed costs Income from operations Dollars $1,800,000 1,080,000 $ 720,000 432,000 $ 288,000 180,000 $ 108,000 36,000 $ 72,000 100% 60 40% 24 16% 10 Dollars $600,000 372,000 $228,000 120,000 $108,000 48,000 $ 60,000 100% 62 38% 20 18% 8 Dollars $600,000 378,000 $ 222,000 102,000 $120,000 66,000 $ 54,000 100% 63 37% 17 20% 11 Dollars $600,000 330,000 $ 270,000 210,000 $ 60,000 66,000 $ (6,000 100 % 55 45 35 10 % 11 6% 10% 9% (1) 2 4% All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores. The marketing manager of Drexel-Hall is considering two alternative advertising strategies, each of which would cost $15,000 per month. One strategy is to advertise the name Drexel-Hall, which is expected to increase the monthly sales at all stores by 5 percent. The other strategy is to emphasize the low prices available at Store 2, which is expected to increase monthly sales at Store 2 by $150,000, but to reduce sales by $30,000 per month at Stores 1 and 3. Determine the expected effect of each strategy on the company's overall income from operations. Strategy 1 expected Strategy 2 expected increase increase in monthly income from operations in monthly income from operations