Shown below are responsibility income statements for Sotheby, Inc., for the month of June.

a. The company plans to initiate an advertising campaign for one of the two products in Division 1. The campaign would cost $8,000 per month and is expected to increase the sales of whichever product is advertised by $25,000 per month. Compute the expected increase in the responsibility margin of Division 1 assuming
(1) That product C is advertised, and
(2) That product D is advertised.
b. Assume that the sales of both products by Division 1 are equal to total manufacturing capacity.
To increase sales of either product, the company must increase manufacturing facilities, which means an increase in traceable fixed costs in approximate proportion to the expected increase in sales. In this case, which product line would you recommend expanding? Explain.
c. The income statement for Division 1 includes $20,000 in common fixed costs. What happens to these fixed costs in the income statements for Sotheby, Inc.?
d. Assume that in November the monthly sales in Division 2 increase to $200,000. Prepare an income statement for Sotheby, Inc., by division in the format illustrated above. What is the expected effect of this change on the operating income of thecompany?

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