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 $ $420,000100\mathrm{.}00\%$ $ $280,000100\%$ $ $140,000100\%$

Variable costs $210,00050\mathrm{.}00168,0006042,00030$

Contribution margin $ $210,00050\mathrm{.}00\%$ $ $112,00040\%$ $ $98,00070\%$

Fixed costs traceable to divisions $126,00030\mathrm{.}0058,8002167,20048$

Division responsibility margin $ $84,00020\mathrm{.}00\%$ $ $53,20019\%$ $ $30,80022\%$

Common fixed costs $50,00011\mathrm{.}90$

Income from operations $ $34,0008\mathrm{.}10\%$

Profit Centers

Division $1$ Product A Product B

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

Sales $ $280,000100\%$ $ $112,000100\mathrm{.}00\%$ $ $168,000100\mathrm{.}00\%$

Variable costs $168,0006050,40045\mathrm{.}00117,60070\mathrm{.}00$

Contribution margin $ $112,00040\%$ $ $61,60055\mathrm{.}00\%$ $ $50,40030\mathrm{.}00\%$

Fixed costs traceable to products $39,2001411,76010\mathrm{.}5027,44016\mathrm{.}33$

Product responsibility margin $ $72,80026\%$ $ $49,84044\mathrm{.}50\%$ $ $22,96013\mathrm{.}67\%$

Common fixed costs $19,6007$

Responsibility margin for division $ $53,20019\%$

Required:

a$.$ The company plans to initiate an advertising campaign for one of the two products in Division $1.$ The campaign would cost $$3,000$ per month and is expected to increase the sales of whichever product is advertised by $$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.

e$.$ Prepare an income statement for Butterfield, Incorporated, by division, under the assumption that in April the monthly sales in Division $2$ increase to $$160,000.$