(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. $
(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. $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:6. Using a responsibility income statement
Shown below is the current monthly income statement of Metro Video, by profit centers:
Sales
Variable Costs
Contribution margin
Fixed costs traceable to
departments
Departments
responsibility margins
Common fixed costs
Income from operations
METRO VIDEO
Income Statement by Profit Centers
For the Month Ended April 30, 20
Metro Video
Dollars
%
$560,000 100
(268,800) (48)
$291,200
52
(67,200) (12)
$224,000
(61,600)
$162,400
40
29
Equipment Sales
Dollars
$280,000
(198,800)
$ 81,200
(25,200)
Segments
$56,000
%
100
71)
29
(09)
Video Rentals
Dollars
$280,000
(70,000)
$210,000
(42,000)
20 $168,000
%
100
(25)
75
(15)
60
On the basis of this information, compute the increase 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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