Shown on the following page are responsibility income statements for Butterfield, Inc., for the month of March.

a. The company plans to initiate an advertising campaign for one of the two products in Division 1. The campaign would cost $10,000 per month and is expected to increase the sales of whichever product is advertised by $30,000 per month. Compute the expected increase in the responsibility margin of Division 1 assuming that
(1) Product A is advertised and
(2) Product B 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 $21,000 in common fixed costs. What happens to these fixed costs in the income statement for Butterfield, Inc.?
d. Assume that in April the monthly sales in Division 2 increase to $200,000. Compute the expected effect of this change on the operating income of the company (assume no other changes in revenue or cost behavior).
e. Prepare an income statement for Butterfield, Inc., by division, under the assumption stated in part d. Organize this income statement in the format illustrated above, including columns forpercentages.

  • CreatedApril 17, 2014
  • Files Included
Post your question