Giant Chef Equipment Company is organized into two divisions: Commercial Sales and Home Products. During June, sales for the Commercial Sales Division totaled $1,500,000, and its contribution margin ratio averaged 34 percent. Sales generated by the Home Products Division totaled $900,000, and its contribution margin ratio averaged 50 percent. Monthly fixed costs traceable to each division are $180,000. Common fixed costs for the month amount to $120,000.

Instructions

a. Prepare Giant Chef Equipment’s responsibility income statement for the current month. Be certain to report 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 Home Products Division to earn a monthly responsibility margin of $500,000.

c. A marketing study indicates that sales in the Home Products Division would increase by 5 percent if advertising expenditures for the division were increased by $15,000 per month. Would you recommend this increase in advertising? Show computations to support your decision.