PROBLEM $22\mathrm{.}6$A

Evaluating an Unprofitable Business Center

FlyWiz, Inc., is a small manufacturer of professional fishing equipment. The company has two divisions$$the rod division and the reel division. Data for the month of January are shown.

Instructions

a$.$ The company plans to initiate an advertising campaign for one of the two products in Division $1.$ The campaign would cost $$10,000$ 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.

b$.$ Assume that the sales of both products by Division $1$ are equal to total manufacturing capacity. To increase sales of either product, the company

must increase manufacturing facilities, which means an increase in traceable fixed costs in approximate proportion to the expected increase in

sales. In this case, which product line would you recommend expanding? Explain.

c$.$ The income statement for Division $1$ includes $$21,000$ in common fixed costs. What happens to these fixed costs in the income statement for

Butterfield, Inc.?

d$.$ Assume that in April the monthly sales in Division $2$ increase to $$200,000.$ Compute the expected effect of this change on the operating income

of the company $($assume no other changes in revenue or cost behavior$).$

e$.$ Prepare an income statement for Butterfield, Inc., by division, under the assumption stated in part d$.$ Organize this income statement in the

format illustrated, including columns for percentages.