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. Investment Centers Division 1 Dollars Division 2 Dollars Butterfield, Inc Dollars $420,000 207,000 $ 213,000 128,700 Sales Variable costs Contribution margin Fixed costs traceable to divisions Division responsibility margin Common fixed costs Income from operations 100% 30 106.00% $270,000 162,000 50.71%108,000 56,700 20.07% $ 51,300 100% $150,000 45,000 40% 105,000 72,000 19% 33,000 49.29 29 60 %. 70% 48 22% 30.64 21 $ 84,300 40,000 9.52 $ 44, 300 10.55% Profit Centers Product A Division 1 Product B Dollars $ 270,000 162,000 $ 108,000 37,800 $ 70,200 18,900 $ 51,300 Dollars $. Sales Variable costs Contribution margin Fixed costs traceable to products Product responsibility margin Common fixed costs Responsibility margin for division 100 . 00% 45.00 55·00% 10.50 44.50% Dollars 162,000 113,400 48, 600 106.00% 70.00 30.00% 16.33 13. 67% 100% 60 108,000 48 , 600 40% $ 59,400 11,340 26% $ 48,060 $. $ 14 26,460 10:3 22,140 19% 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 $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 e. Prepare an income statement for Butterfield, Inc., by division, under the assumption that in April the monthly sales in Division 2 increase to $170,000

Explanation / Answer

Answer a. Calculation of Exepected Change in Responsibility Margin: Product A Product B Expected Increase in Sales                  30,000               30,000 Product Contribution Margin Ratio 55% 30% Expected Increase in Contribution margin                  16,500                  9,000 Expected Change in Fixed Cost - Advertising                    5,000                  5,000 Expected Change in Responsibility Margin                  11,500                  4,000 Answer b. Butterfield Inc. Division Income Statement Butterfield Inc Division 1 Division 2 Dollars % Dollars % Dollars % Sales               440,000 100.00%          270,000 100.00%          170,000 100.00% Variable Costs               213,000 48.41%          162,000 60.00%            51,000 30.00% Contribution Margin               227,000 51.59%          108,000 40.00%          119,000 70.00% Fixed Costs traceable to products               128,700 29.25%            56,700 21.00%            72,000 42.35% Product Responsibility Margin                  98,300 22.34%            51,300 19.00%            47,000 27.65% Common Fixed Costs                  40,000 9.09% Responsibility Margin for Divisions                  58,300 13.25%

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