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Shown as follows is a segmented income statement for Drexel - Hall during the current month: Drexel - Hall Profit Centers Store 1 Store 2
Shown as follows is a segmented income statement for DrexelHall during the current month:
DrexelHall Profit Centers
Store Store Store
Dollars Dollars Dollars Dollars
Sales $ $ $ $
Variable costs
Contribution margin $ $ $ $
Traceable fixed costs: controllable
Performance margin $ $ $ $
Traceable fixed costs: committed
Store responsibility margin $ $ $ $
Common fixed costs
Income from operations $
All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store was established first and was built at a lower cost than were Stores and This lower cost results in less depreciation expense for Store Store follows a policy of minimizing both costs and sales prices. Store follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores.
Required:
Use the data given for DrexelHall to answer the following questions:
Assume that by spending an additional $ per month in advertising a particular store, DrexelHall can increase the sales of that store by percent. What would be the additional contribution margin added by each store if given the additional advertising?
Which store should the company advertise to receive the maximum benefit from this additional advertising expenditure?
From the viewpoint of top management, which is the most profitable of the three stores?
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