Question
Regal Flair Enterprises has two product lines: jewelry and women's apparel. Cost and revenue data for each product line for the current month are as
Regal Flair Enterprises has two product lines: jewelry and women's apparel. Cost and revenue data for each product line for the current month are as follows:
Product Lines | ||||||||||||
Jewelry | Apparel | |||||||||||
Sales | $ | 800,000 | $ | 450,000 | ||||||||
Variable costs as a percentage of sales | 55 | % | 28 | % | ||||||||
Fixed costs traceable to product lines | $ | 200,000 | $ | 250,000 | ||||||||
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c-1. | Management is considering expanding one of the companys two product lines. An investment of a given dollar amount is expected to increase the sales of the expanded product line by $300,000. It is also expected to increase the traceable fixed costs of the expanded product line by 75 percent. What is the expected effect of the proposed investment in each product line upon income from operations for both product lines? |
JewelryApparel
Expected increase in contribution margin
Expected increase (decrease) in operating income
c-2. | Based on the above information, which product line do you recommend expanding? Jewelry Apparel Both
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