Shown below is the current monthly income statement of Metro Video, by profit centers: Metro Video...

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Shown below is the current monthly income statement of Metro Video, by profit centers: Metro Video Responsibility Accounting Income Statement For the Month of April Entire Company Segments Equipment Sales Video Rentals Sales $ 560,000 $ 280,000 $ 280,000 Variable costs 268,800 198,800 70,000 Contribution margin $ 291,200 $ 81,200 $ 210,000 Fixed costs traceable to departments 67,200 25,200 42,000 Department responsibility margin $ 224,000 $ 56,000 $ 168,000 Common fixed costs 61,600 Operating income $ 162,400 The contribution margin ratios are as follows: entire company 52%, equipment sales 29%, and video rentals 75%. Required: On the basis of this information, compute the increase decrease) in monthly income from operations that may be expected to result from each of the following actions: (A) Spending $5,000 per month in advertising is expected to increase sales in the Equipment Sales Department by 35%. (B) Closing the Equipment Sales Department and allowing the Video Rentals Department to expand is expected to increase the revenue of the Video Rentals Department by $105,000 per month. This action also is expected to increase fixed costs traceable to the Video Rentals Department by $40,000 per month. Shown below is the current monthly income statement of Metro Video, by profit centers: Metro Video Responsibility Accounting Income Statement For the Month of April Entire Company Segments Equipment Sales Video Rentals Sales $ 560,000 $ 280,000 $ 280,000 Variable costs 268,800 198,800 70,000 Contribution margin $ 291,200 $ 81,200 $ 210,000 Fixed costs traceable to departments 67,200 25,200 42,000 Department responsibility margin $ 224,000 $ 56,000 $ 168,000 Common fixed costs 61,600 Operating income $ 162,400 The contribution margin ratios are as follows: entire company 52%, equipment sales 29%, and video rentals 75%. Required: On the basis of this information, compute the increase decrease) in monthly income from operations that may be expected to result from each of the following actions: (A) Spending $5,000 per month in advertising is expected to increase sales in the Equipment Sales Department by 35%. (B) Closing the Equipment Sales Department and allowing the Video Rentals Department to expand is expected to increase the revenue of the Video Rentals Department by $105,000 per month. This action also is expected to increase fixed costs traceable to the Video Rentals Department by $40,000 per month.

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Answer Amount 28000000 Paticulars Sales of equipment deptt Contri... View the full answer