Question

Shown as follows are responsibility income statements for Butterfield, Inc., for the month of March. Sales Variable costs Contribution margin Fixed costs traceable to divisions Division responsibility margin Common fixed costs Income from operations 30 Investment Centers Butterfield, Inc Division 1 Dollars % Dollars % $ 470,000 100.00% $ 350,000 100% 246,000 52.34 210,000 6 0 $ 224,000 47.66% $ 140,000 40% 131,100 27.89 7 3,500 21 $ 92,900 19.77% $ 66,500 19% 40,000 8.51 $ 52,900 11.26% Division 2 Dollars % $ 120,000 100% 36,000 $ 84,000 70% 57,600 48 $ 26,400 22% Sales Variable costs Contribution margin Fixed costs traceable to products Product responsibility margin Common fixed costs Responsibility margin for division Division 1 Dollars % $ 350,000 100% 210,000 60 $ 140,000 40% 49,000 14 $ 91,000 26% 24,500 $ 66,500 19% Profit Centers Product Dollars % $ 140,000 100.00% 63,000 45.00 $ 77,000 55.00% 14,700 10.50 $ 62,300 44.50% Product B Dollars % $ 210,000 100.00% 147,000 70.00 $ 63,000 30.00% 34,300 16.33 $ 28,700 13.67% 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 $140,000.

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

C D E F Answer Part 1) Product A Expected Change in Contribution margin = (increase in sales * contribution margin of A) - advertising campaign cost = (40000*55%) - 3000 = 22000 - 3000 = $ 19000 Product B Expected Change in Contribution margin = (increase in sales * contribution margin of B) - advertising campaign cost = (40000*30%) - 3000 = 12000-3000 = $ 9000 Thus the final answer is Expected Chane in Responsibility margin Product A 19000 Product B 9000

Part 2) Butterfiled Inc. Responsibility Income Statement For April Butterfiled Inc. Division 1 610000 100 % 350000 100% - Sales 100% Variable Costs 288000 47.21 % 210000 60% 30 % Division 2 260000 (120000+140000) 78000 (260000*30%) 182000 57600 124400 Contribution Margin Fixed Cost Traceable to divisions Division respnsibility margin Common fixed cost Income from operations 322000 131100 190900 40000 150900 52.79% 21.49% 31.30 % 6.56% 24.74% 140000 73500 66500 40% - 21% 19% 70 % 22.15% 47.85% Formula for percentage = amount/respective sales figure *100 For any help please comment in the comment box Thank You