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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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