Glassware Company is organized into two divisions: Etched Glass and Clear Glass. During August, sales for the Etched Division totaled $7,500,000, and its contribution margin ratio averaged 38 percent. Sales generated by the Clear Division totaled $6,000,000 and its contribution margin ratio averaged 45 percent. Monthly fixed costs traceable to each division are $1,200,000. Common fixed costs for the month amount to $100,000.
Instructions
a. Prepare Glassware Company's responsibility income statement for the current month. Be certain to report the responsibility margin for each division and income from operations for the company as a whole. Also include columns showing all dollar amounts as percentages of sales.
b. Compute the dollar sales volume required for the Clear Glass Division to earn a monthly responsibility margin of $1,600,000.
c. A marketing study indicates that sales in the Clear Glass Division would increase by 4 percent if advertising expenditures for the division were increased by $12,000 per month. Would you recommend this increase in advertising? Show computations to support your decision.