Robinns Company is organized into two divisions: Deluxe and Standard. During August, sales for the Deluxe Division totaled $2,000,000, and its contribution margin ratio averaged 35 percent. Sales generated by the Standard Division totaled $1,200,000, and its contribution margin ratio averaged 50 percent. Monthly fixed costs traceable to each division are $200,000. Common fixed costs for the month amount to $100,000.
a. Prepare Robinns 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 Standard Division to earn a monthly responsibility margin of $600,000.
c. A marketing study indicates that sales in the Standard 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.