Exercise $22\mathrm{.}8($Static$)$ Cost$-$Volume$-$Profit Analysis $($LO$22-1,$ LO$22-2,$ LO$22-3,$ LO$22-4)$

Shown as follows is a segmented income statement for Drexel$-$Hall during the current month.

Profit Centers

Drexel$-$Hall Store $1$ Store $2$ Store $3$

Dollars $\%$ Dollars $\%$ Dollars $\%$ Dollars $\%$

Sales $ $1,800,000100\%$ $ $600,000100\%$ $ $600,000100\%$ $ $600,000100\%$

Variable costs $1,080,00060372,00062378,00063330,00055$

Contribution margin $ $720,00040\%$ $ $228,00038\%$ $ $222,00037\%$ $ $270,00045\%$

Traceable fixed costs: controllable $432,00024120,00020102,00017210,00035$

Performance margin $ $288,00016\%$ $ $108,00018\%$ $ $120,00020\%$ $ $60,00010\%$

Traceable fixed costs: committed $180,0001048,000866,0001166,00011$

Store responsibility margin $ $108,0006\%$ $ $60,00010\%$ $ $54,0009\%$ $ $(6,000)(1)\%$

Common fixed costs $36,0002$

Income from operations $ $72,0004\%$

All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store $1$ was established first and was built at a lower cost than were Stores $2$ and $3.$ This lower cost results in less depreciation expense for Store $1.$ Store $2$ follows a policy of minimizing both costs and sales prices. Store $3$ follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores.

The marketing manager of Drexel$-$Hall is considering two alternative advertising strategies, each of which would cost $$15,000$ per month. One strategy is to advertise the name Drexel$-$Hall, which is expected to increase the monthly sales at all stores by $5$ percent. The other strategy is to emphasize the low prices available at Store $2,$ which is expected to increase monthly sales at Store $2$ by $$150,000,$ but to reduce sales by $$30,000$ per month at Stores $1$ and $3.$

Determine the expected effect of each strategy on the company$$s overall income from operations.