Question
Shown as follows are responsibility income statements for Butterfield, Inc., for the month of March. Investment Centers Butterfield, Inc Division 1 Division 2 Dollars %
Shown as follows are responsibility income statements for Butterfield, Inc., for the month of March.
Investment Centers | ||||||||||||||||||
Butterfield, Inc | Division 1 | Division 2 | ||||||||||||||||
Dollars | % | Dollars | % | Dollars | % | |||||||||||||
Sales | $ | 440,000 | 100.00 | % | $ | 270,000 | 100 | % | $ | 170,000 | 100 | % | ||||||
Variable costs | 213,000 | 48.41 | 162,000 | 60 | 51,000 | 30 | ||||||||||||
Contribution margin | $ | 227,000 | 51.59 | % | $ | 108,000 | 40 | % | $ | 119,000 | 70 | % | ||||||
Fixed costs traceable to divisions | 138,300 | 31.43 | 56,700 | 21 | 81,600 | 48 | ||||||||||||
Division responsibility margin | $ | 88,700 | 20.16 | % | $ | 51,300 | 19 | % | $ | 37,400 | 22 | % | ||||||
Common fixed costs | 50,000 | 11.36 | ||||||||||||||||
Income from operations | $ | 38,700 | 8.80 | % | ||||||||||||||
Profit Centers | ||||||||||||||||||
Division 1 | Product A | Product B | ||||||||||||||||
Dollars | % | Dollars | % | Dollars | % | |||||||||||||
Sales | $ | 270,000 | 100 | % | $ | 108,000 | 100.00 | % | $ | 162,000 | 100.00 | % | ||||||
Variable costs | 162,000 | 60 | 48,600 | 45.00 | 113,400 | 70.00 | ||||||||||||
Contribution margin | $ | 108,000 | 40 | % | $ | 59,400 | 55.00 | % | $ | 48,600 | 30.00 | % | ||||||
Fixed costs traceable to products | 37,800 | 14 | 11,340 | 10.50 | 26,460 | 16.33 | ||||||||||||
Product responsibility margin | $ | 70,200 | 26 | % | $ | 48,060 | 44.50 | % | $ | 22,140 | 13.67 | % | ||||||
Common fixed costs | 18,900 | 7 | ||||||||||||||||
Responsibility margin for division | $ | 51,300 | 19 | % | ||||||||||||||
Required:
a. The company plans to initiate an advertising campaign for one of the two products in Division 1. The campaign would cost $5,000 per month and is expected to increase the sales of whichever product is advertised by $40,000 per month. Compute the expected increase in the responsibility margin of Division 1 assuming that (1) product A is advertised and (2) product B is advertised.
e. Prepare an income statement for Butterfield, Inc., by division, under the assumption that in April the monthly sales in Division 2 increase to $190,000.
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