Reference no: EM132943825

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

Investment Centers Butterfield, Inc Division 1 Division 2 Dollars % Dollars % Dollars % Sales$520,000 100.00% $340,000 100% $180,000 100% Variable costs 258,000 49.62 204,000 60 54,000 30 Contribution margin$262,000 50.38% $136,000 40% $126,000 70% Fixed costs traceable to divisions 157,800 30.35 71,400 21 86,400 48 Division responsibility margin$104,200 20.04% $64,600 19% $39,600 22% Common fixed costs 50,000 9.62 Income from operations$54,200 10.42%

Profit Centers Division 1 Product A Product B Dollars % Dollars % Dollars % Sales$340,000 100% $136,000 100.00% $204,000 100.00% Variable costs 204,000 60 61,200 45.00 142,800 70.00 Contribution margin$136,000 40% $74,800 55.00% $61,200 30.00% Fixed costs traceable to products 47,600 14 14,280 10.50 33,320 16.33 Product responsibility margin$88,400 26% $60,520 44.50% $27,880 13.67% Common fixed costs 23,800 7 Responsibility margin for division$64,600 19%

Required -

a. The company plans to initiate an advertising campaign for one of the two products in Division 1. The campaign would cost $4,000 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. Explain how to create an income statement for Butterfield, Inc., by division, under the assumption that in April the monthly sales in Division 2 increase to $200,000.