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

b-1.

Assume that a marketing survey shows that a $75,000 monthly advertising campaign focused on either product line should increase that product lines monthly sales by approximately $150,000. What is the expected effect of the proposed advertising campaign upon income from operations for both product lines?

JewelryApparel

Expected increase in contribution margin

Less: Increase in advertising expenditures

Expected increase (decrease) in operating income

b-2.	Do you recommend this additional advertising for either or both product lines? Jewelry Apparel Both

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