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

Transcribed Image Text:

Shown as follows is a segmented income statement for Drexel-Hall during the current month: Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs: committed Store responsibility margin Common fixed costs Income from operations Drexel-Hall Dollars $ 2,070,000 Store 1 Dollars Profit Centers Store 2 Dollars Store 3 Dollars g 100% 1,242,000 $ 828,000 496,800 60 40% 24 $ 331,200 207,000 16% 10 $ 124,200 45,000 6% 2 $ 690,000 427,800 $ 262,200 138,000 $ 124,200 55,200 $ 69,000 100% 62 38% 20 $ 690,000 434,700 $ 255,300 117,300 100% $ 690,000 100% 63 379,500 55 37% 17 18% 8 10% $ 138,000 75,900 20% 11 $ 310,500 241,500 $ 69,000 75,900 45% 35 10% 11 $ 62,100 9% $ (6,900) (1) % $ 79,200 4% 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. Required: Use the data given for Drexel-Hall to answer the following questions: a. Assume that by spending an additional $18,600 per month in advertising a particular store, Drexel-Hall can increase the sales of that store by 10 percent. What would be the additional contribution margin added by each store if given the additional advertising? b. Which store should the company advertise to receive the maximum benefit from this additional advertising expenditure? c. From the viewpoint of top management, which is the most profitable of the three stores? Shown as follows is a segmented income statement for Drexel-Hall during the current month: Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs: committed Store responsibility margin Common fixed costs Income from operations Drexel-Hall Dollars $ 2,070,000 Store 1 Dollars Profit Centers Store 2 Dollars Store 3 Dollars g 100% 1,242,000 $ 828,000 496,800 60 40% 24 $ 331,200 207,000 16% 10 $ 124,200 45,000 6% 2 $ 690,000 427,800 $ 262,200 138,000 $ 124,200 55,200 $ 69,000 100% 62 38% 20 $ 690,000 434,700 $ 255,300 117,300 100% $ 690,000 100% 63 379,500 55 37% 17 18% 8 10% $ 138,000 75,900 20% 11 $ 310,500 241,500 $ 69,000 75,900 45% 35 10% 11 $ 62,100 9% $ (6,900) (1) % $ 79,200 4% 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. Required: Use the data given for Drexel-Hall to answer the following questions: a. Assume that by spending an additional $18,600 per month in advertising a particular store, Drexel-Hall can increase the sales of that store by 10 percent. What would be the additional contribution margin added by each store if given the additional advertising? b. Which store should the company advertise to receive the maximum benefit from this additional advertising expenditure? c. From the viewpoint of top management, which is the most profitable of the three stores?

Answer rating: 100% (QA)

Answer To solve this problem we need to analyze the given information and calculate the additional m... View the full answer