Problem $22\mathrm{.}5$A $($Algo$)$ Analysis of Responsibility Income Statements $($LO$22-3,$ LO$22-4,$ LO$22-5)$

Shown as follows are responsibility income statements for Butterfield, Incorporated, for the month of March:

Investment Centers

Butterfield, Incorporated Division $1$ Division $2$

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

Sales $ $470,000100\mathrm{.}00\%$ $ $310,000100\%$ $ $160,000100\%$

Variable costs $234,00049\mathrm{.}79186,0006048,00030$

Contribution margin $ $236,00050\mathrm{.}21\%$ $ $124,00040\%$ $ $112,00070\%$

Fixed costs traceable to divisions $141,90030\mathrm{.}1965,1002176,80048$

Division responsibility margin $ $94,10020\mathrm{.}02\%$ $ $58,90019\%$ $ $35,20022\%$

Common fixed costs $40,0008\mathrm{.}51$

Income from operations $ $54,10011\mathrm{.}51\%$

Profit Centers

Division $1$ Product A Product B

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

Sales $ $310,000100\%$ $ $124,000100\mathrm{.}00\%$ $ $186,000100\mathrm{.}00\%$

Variable costs $186,0006055,80045\mathrm{.}00130,20070\mathrm{.}00$

Contribution margin $ $124,00040\%$ $ $68,20055\mathrm{.}00\%$ $ $55,80030\mathrm{.}00\%$

Fixed costs traceable to products $43,4001413,02010\mathrm{.}5030,38016\mathrm{.}33$

Product responsibility margin $ $80,60026\%$ $ $55,18044\mathrm{.}50\%$ $ $25,42013\mathrm{.}67\%$

Common fixed costs $21,7007$

Responsibility margin for division $ $58,90019\%$

Required:

a$.$ The company plans to initiate an advertising campaign for one of the two products in Division $1.$ The campaign would cost $$4,000$ per month and is expected to increase the sales of whichever product is advertised by $$40,000$ 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.

e$.$ Prepare an income statement for Butterfield, Incorporated, by division, under the assumption that in April the monthly sales in Division $2$ increase to $$180,000.$