Giant Chef Equipment Company is organized into two divisionscommercial sales and home products. During June, sales for the commercial sales division totaled $1,500,000, and its contribution margin ratio averaged 34 percent. Sales generated by the home products division totaled $900,000, and its contribution margin ratio averaged 50 percent. Monthly fixed costs traceable to each division are $180,000. Common fixed costs for the month amount to $120,000.

Required:

a. Prepare Giant Chef Equipment's responsibility income statement for the current month. Be certain to report responsibility margin for each division and income from operations for the company as a whole.

b. Compute the dollar sales volume required for the Home Products Division to earn a monthly responsibility margin of $500,000.

c-1. A marketing study indicates that sales in the home products division would increase by 5 percent if advertising expenditures for the division were increased by $15,000 per month. Calculate the Increase or decrease in responsibility margin.

c-2. Would you recommend this increase in advertising?