Shown as follows are responsibility income statements for Butterfield, Inc., for the month of March.

Required:

a. The company plans to initiate an advertising campaign for one of the two products in Division 1. The campaign would cost $5,000 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.

b. Prepare an income statement for Butterfield, Inc., by division, under the assumption that in April the monthly sales in Division 2 increase to $150,000.

Transcribed Image Text:

Sales Variable costs Contribution margin Fixed costs traceable to divisions Division responsibility margin Common fixed costs Income from operations Sales Variable costs Contribution margin Fixed costs traceable to products Product responsibility margin Common fixed costs Responsibility margin for division Butterfield, Inc. % Dollars $ 300,000 100.00% 50.93 180,000 49.07% $120,000 29.16 63,000 19.91% $ 57,000 11.63 8.28% Dollars $ 430,000 219,000 $ 211,000 125,400 $ 85,600 50,000 $ 35,600 Division 1 Dollars. $ 300,000 180,000 $ 120,000 42,000 Investment Centers Division 1 $ 78,000 21,000 $ 57,000 % Division 2 Dollars % 100% $ 130,000 100% 60 39,000 30 40% $91,000 70% 21 48 62,400 19% $ 28,600 22% Profit Centers Product A % Dollars 100% $120,000 60 54,000 40% $ 66,000 14 12,600 26% $53,400 7 19% Product B % Dollars 100.00% $ 180,000 45.00 126,000 55.00% $ 54,000 10.50 29,400 44.50% $ 24,600 % 100.00% 70.00 30.00% 16.33 13.67% Sales Variable costs Contribution margin Fixed costs traceable to divisions Division responsibility margin Common fixed costs Income from operations Sales Variable costs Contribution margin Fixed costs traceable to products Product responsibility margin Common fixed costs Responsibility margin for division Butterfield, Inc. % Dollars $ 300,000 100.00% 50.93 180,000 49.07% $120,000 29.16 63,000 19.91% $ 57,000 11.63 8.28% Dollars $ 430,000 219,000 $ 211,000 125,400 $ 85,600 50,000 $ 35,600 Division 1 Dollars. $ 300,000 180,000 $ 120,000 42,000 Investment Centers Division 1 $ 78,000 21,000 $ 57,000 % Division 2 Dollars % 100% $ 130,000 100% 60 39,000 30 40% $91,000 70% 21 48 62,400 19% $ 28,600 22% Profit Centers Product A % Dollars 100% $120,000 60 54,000 40% $ 66,000 14 12,600 26% $53,400 7 19% Product B % Dollars 100.00% $ 180,000 45.00 126,000 55.00% $ 54,000 10.50 29,400 44.50% $ 24,600 % 100.00% 70.00 30.00% 16.33 13.67%

Answer rating: 100% (QA)

SOLUTION a To compute the expected increase in the responsibility margin of Division 1 we need to determine the impact of advertising on the sales and ... View the full answer