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Shown as follows is a segmented income statement for Drexel-Hall during the current month: All stores are similar in size, carry similar products, and operate
Shown as follows is a segmented income statement for Drexel-Hall during the current month: All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores. Required: Use the data given for Drexel-Hall to answer the following questions: a. Assume that by spending an additional $18,600 per month in advertising a particular store, Drexel-Hall can increase the sales of that store by 10 percent. What would be the additional contribution margin added by each store if given the additional advertising? b. Which store should the company advertise to receive the maximum benefit from this additional advertising expenditure? c. From the viewpoint of top management, which is the most profitable of the three stores? Assume that by spending an additional $18,600 per month in advertising a particular store, Drexel-Hall can increase the sales of that store by 10 percent. What would be the additional contribution margin added by each store if given the additional advertising
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