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 $ 460,000 100.00 % $ 290,000 100 % $ 170,000 100 % Variable costs 225,000 48.91 174,000 60 51,000 30 Contribution margin $ 235,000 51.09 % $ 116,000 40 % $ 119,000 70 % Fixed costs traceable to divisions 142,500 30.98 60,900 21 81,600 48 Division responsibility margin $ 92,500 20.11 % $ 55,100 19 % $ 37,400 22 % Common fixed costs 40,000 8.70 Income from operations $ 52,500 11.41 % Profit Centers Division 1 Product A Product B Dollars % Dollars % Dollars % Sales $ 290,000 100 % $ 116,000 100.00 % $ 174,000 100.00 % Variable costs 174,000 60 52,200 45.00 121,800 70.00 Contribution margin $ 116,000 40 % $ 63,800 55.00 % $ 52,200 30.00 % Fixed costs traceable to products 40,600 14 12,180 10.50 28,420 16.33 Product responsibility margin $ 75,400 26 % $ 51,620 44.50 % $ 23,780 13.67 % Common fixed costs 20,300 7 Responsibility margin for division $ 55,100 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 $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 $190,000.

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 $ 460,000 100.00 % $ 290,000 100 % $ 170,000 100 % Variable costs 225,000 48.91 174,000 60 51,000 30 Contribution margin $ 235,000 51.09 % $ 116,000 40 % $ 119,000 70 % Fixed costs traceable to divisions 142,500 30.98 60,900 21 81,600 48 Division responsibility margin $ 92,500 20.11 % $ 55,100 19 % $ 37,400 22 % Common fixed costs 40,000 8.70 Income from operations $ 52,500 11.41 % Profit Centers Division 1 Product A Product B Dollars % Dollars % Dollars % Sales $ 290,000 100 % $ 116,000 100.00 % $ 174,000 100.00 % Variable costs 174,000 60 52,200 45.00 121,800 70.00 Contribution margin $ 116,000 40 % $ 63,800 55.00 % $ 52,200 30.00 % Fixed costs traceable to products 40,600 14 12,180 10.50 28,420 16.33 Product responsibility margin $ 75,400 26 % $ 51,620 44.50 % $ 23,780 13.67 % Common fixed costs 20,300 7 Responsibility margin for division $ 55,100 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 $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 $190,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	$	460,000		100.00	%	$	290,000		100	%	$	170,000	100	%
Variable costs		225,000		48.91			174,000		60			51,000	30
Contribution margin	$	235,000		51.09	%	$	116,000		40	%	$	119,000	70	%
Fixed costs traceable to divisions		142,500		30.98			60,900		21			81,600	48
Division responsibility margin	$	92,500		20.11	%	$	55,100		19	%	$	37,400	22	%
Common fixed costs		40,000		8.70
Income from operations	$	52,500		11.41	%

	Profit Centers
	Division 1		Product A		Product B
	Dollars		%		Dollars	%		Dollars		%
Sales	$	290,000		100	%	$	116,000		100.00	%	$	174,000	100.00	%
Variable costs		174,000		60			52,200		45.00			121,800	70.00
Contribution margin	$	116,000		40	%	$	63,800		55.00	%	$	52,200	30.00	%
Fixed costs traceable to products		40,600		14			12,180		10.50			28,420	16.33
Product responsibility margin	$	75,400		26	%	$	51,620		44.50	%	$	23,780	13.67	%
Common fixed costs		20,300		7
Responsibility margin for division	$	55,100		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 $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 $190,000.

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