Regal Flair Enterprises has two product lines-jewelry and women's apparel. Cost and revenue data for each product line for the current month are as follows.
____________________________________________________________ Product Lines
___________________________________________________ Jewelry ___________ Apparel
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $900,000 ............... $400,000
Variable costs as a percentage of sales . . . . . . . . . . . . . . . . . . . . . . 40% ..................... 30%
Fixed costs traceable to product lines . . . . . . . . . . . . . . . . . . . . . $225,000 ............... $240,000
In addition to the costs shown, the company incurs monthly fixed costs of $130,000 common to both product lines.
Instructions
a. Prepare Regal Flair Enterprises's responsibility income statement for the current month. Report the responsibility margin for each product line and income from operations for the company as a whole. Also include columns showing all dollar amounts as percentages of sales.
b. Assume that a marketing survey shows that a $80,000 monthly advertising campaign focused on either product line should increase that product line's monthly sales by approximately $120,000. Do you recommend this additional advertising for either or both product lines? Show computations to support your conclusions.
c. Management is considering expanding one of the company's two product lines. An investment of a given dollar amount is expected to increase the sales of the expanded product line by $300,000. It is also expected to increase the traceable fixed costs of the expanded product line by 70 percent. On the basis of this information, which product line do you recommend expanding? Explain the basis for your conclusion.