Problem 22.2A (Static) Preparing and Using Responsibility Income Statements (LO22-3, LO22-4, LO22-5)

Darby Press publishes two lines of booksfiction and nonfiction. Cost and revenue data for each product line for the current month are as follows.

	Product Lines
	Fiction				Nonfiction
Sales	$	800,000			$	300,000
Variable costs as a percentage of sales		60	%			20	%
Fixed costs traceable to product lines	$	80,000			$	125,000

In addition to the costs shown, the company incurs monthly fixed costs of $260,000 common to both product lines.

Required:

a. Prepare the companys 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-1. Compute expected monthly increase (decrease) in operating income for both fiction and nonfiction assuming that a marketing survey shows that a $50,000 monthly advertising campaign focused on either product line should increase that product lines monthly sales by approximately $75,000.

b-2. Based on the information given in requirement B1., for which product line do you recommend this additional advertising?

c-1. Compute expected monthly increase (decrease) in operating income for both fiction and nonfiction assuming that the management is considering expanding one of the companys two product lines. The plan under consideration is expected to increase the sales of the expanded product line by $100,000. It is also expected to increase the traceable fixed costs of the expanded product line by 55 percent.

c-2. Based on the information provided in requirement C1., which product line do you recommend expanding?

Darby Press
Responsibility Income Statement
For the Current Month
	Entire Company			Fiction Line			Nonfiction Line
	Dollars	Percent		Dollars	Percent		Dollars	Percent
			%			%			%
			%			%			%
			%			%			%
			%			%			%
			%			%			%
			%
			%

Answers for the 7 dropdowns are cash, common fixed cost, fixed cost traceable to each division, manufacturing overhead cost, sales, variable cost