Shown as follows are responsibility income statements for Butterfield, Inc., for

Question

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 $3,000 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.

e. Prepare an income statement for Butterfield, Inc., by division, under the assumption that in April the monthly sales in Division 2 increase to $200,000.

Investment Centers Butterfield, Inc Division 1 Division 2 Dollars % Dollars % Dollars % Sales $ 470,000 100.00 % $ 290,000 100 % $ 180,000 100 % Variable costs 228,000 48.51 174,000 60 54,000 30 Contribution margin $ 242,000 51.49 % $ 116,000 40 % $ 126,000 70 % Fixed costs traceable to divisions 147,300 31.34 60,900 21 86,400 48 Division responsibility margin $ 94,700 20.15 % $ 55,100 19 % $ 39,600 22 % Common fixed costs 50,000 10.64 Income from operations $ 44,700 9.51 %

Explanation / Answer

Solution a:

Solution e:

Income Statement - Butterfield Inc. - Division 1 (Product A advertised) Particulars Division 1 Product A Product B Amount % Amount % Amount % Sales $330,000.00 100.00% $156,000.00 100.00% $174,000.00 100.00% Varaible Cost $192,000.00 58.18% $70,200.00 45.00% $121,800.00 70.00% Contribution Margin $138,000.00 41.82% $85,800.00 55.00% $52,200.00 30.00% Fixed costs tracable to products $43,600.00 13.21% $15,180.00 9.73% $28,420.00 16.33% Product Responsibility Margin $94,400.00 28.61% $70,620.00 45.27% $23,780.00 13.67% Common Fixed costs $20,300.00 6.15% Responsibility margin for division $74,100.00 22.45% Exisitng responsibility margin $55,100.00 Net Increase in responsibility margin $19,000.00

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