which one is correct? and why

A contribution format income statement for the most recent year for Big Bear Consumer Electronics Inc. is shown below. Total Department $320,000 100% 236,000 74% AM/FM radios $270,000 100% 216,000 80% HD radios $50,000 100% 20,000 40% 84,000 26% 54,000 20% 30,000 60% 15,000 Sales Less variable expenses Contribution Margin Less Traceable Fixed Expenses Segment Margin Less Common Fixed Expenses Net Operating Income 5% 10.000 4% 5,000 10% $44.000 16% $25.000 50% 69,000 40.000 13% $29,000 9% PROBLEM BACKGROUND: Shortly after graduating with a business degree from Columbia University, you are hired as an assistant to the District Manager of a national consumer electronics chain. During your first day on the job, you attend a meeting regarding product lines carried by the chain. You learn about a fairly new.innovation called HD (high definition) radio, This product allows consumers to listen to not only traditional AM and FM bands, but also to the newly created HD frequencies that most local radio stations are broadcasting free of charge to listeners on adjacent frequencies that previously were unused. Unlike satellite radio, this service requires no subscription charges. Consumers who have heard HD radio tell you that AM-HD broadcasts sound like FM and FM-HD broadcasts sound like CD quality! Due to improved manufacturing technologies, the cost to manufacture HD radios has dropped dramatically PROBLEM: Your boss (the District Manager) has authorized you to spend $10,000 for advertising for one of your chain's local stores, promoting one of their product lines. A Marketing Research class at Columbia University conducted a study indicating that the additional advertising would increase sales of the AM/FM radios by $50,000 and increase sales of the HD radios by only $45,000. The local store manager (who never took a course in Managerial Accounting) argues that the advertising budget should be spent on the AM/FM radios because it will result in more sales dollars. The store manager also argues that the AM/FM radio line's total sales are substantially higher than the HD line, therefore as the biggest selling item it should receive all advertising allotments. a) Using Excel, prepare new segmented income statements (including the new sales and cost data) based upon your recommendation (hint: on what line would the $10,000 of dedicated advertising appear?) You should submit 3 segmented income statements. The first being the original data on front of this page, the second, assuming the advertising is spent on AM/FM and the third assuming the advertising is spent on HD radios D Determine which product line (AM/FM radios or HD radios) you will spend the $10,000 of advertising on. Show your work, justifying this decision, based upon a cost/benefit analysis. What would you tell the store manager? Include a short memo to your boss (the District Manager) explaining your decision. c) What form of media would you recommend using to advertise your chosen product line? (explain why) d) Are there any "implicit" considerations that should enter the decision on which product line to promote? Adverising spend on HD radios: Sales Less: Variable expenses Contribution Margin Less: Traceable Fixed Expenses Segment Margin Less: Common Fixed Expenses Net Operating Income Total Department | AM/FM Radios $365,000 100% $ 270,000 100% 254,000 70% 216,000 80% 111,000 30% 54,000 20% 25,000 10,000 4% 86,000 24% $ 44,000 16% 40,000 $ 46,000 13% HD Radios $ 95,000 100% 38,000 409 57,000 60% 15,000 169 $ 42,000 11% Adverising spend on AM/FM radios: Total Department AM/FM Radios HD Radios Sales $ 370,000 100% $ 320,000 100% $ 50,000 100% Less: Variable expenses 276,000 75% 256,000 80% 20,000 1 40% Contribution Margin 94,000 25% 64,000 20% 30,000 60% Less: Traceable Fixed Expenses 25,000 7% 20,000 5,000 10% Segment Margin 69,000 19% $ 44,000 14% $ 25,000 509 Less: Common Fixed Expenses 40,000 11% Net Operating Income $ 29,000 8% Situation 1:If the advertisement amount spent on FM or AM radios Particulars Total department FM/AM Radios HD radios Sales 370000(320000+50000) 320000(270000+50000) 50000 Less: variable 236000 216000 20000 cost Contribution 134000(36.21%) 104000(32.5%) 30000(60%) 20000(10000+advert) 5000 margin Less; traceable 25000 fixed expense Segment 109000(29.46%) margin Less common fixed 40000 expenses 84000(26.25%) 25000(50%) Operating 69000(18.65%) profit Situation 2: If the advertisement expense spent on HD radio Particulars FM/AM Total department HD radios Radios Sales 365000(320000+50000) 270000 95000 Less: variable cost 236000 216000 20000 Contribution 129000(36.21%) 54000(20%) 75000(78.95%) margin Less; traceable 25000 10000 15000 fixed expense Segment margin 104000(28.49%) 44000(16.30%) 6000063.16%) Less common fixed 20000 expenses Operating profit 64000(17.53%) Conclusion Particulars FM/AM%) HD(%) Increase in sales Increase in segment contribution margin (26.25-16.3) (63.16-50) 10.2% 13.5% (18.65-9) (17.53-9) Increase in total operating profit 9.65% 8.53%