Question
In: Accounting
Shown as follows are responsibility income statements for Butterfield, Inc., for the month of March. Investment...
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 | $ | 470,000 | 100.00 | % | $ | 290,000 | 100 | % | $ | 180,000 | 100 | % | ||||||
| Variable costs | 228,000 | 48.51 | 174,000 | 60 | 54,000 | 30 | ||||||||||||
| Contribution margin | $ | 242,000 | 51.49 | % | $ | 116,000 | 40 | % | $ | 126,000 | 70 | % | ||||||
| Fixed costs traceable to divisions | 147,300 | 31.34 | 60,900 | 21 | 86,400 | 48 | ||||||||||||
| Division responsibility margin | $ | 94,700 | 20.15 | % | $ | 55,100 | 19 | % | $ | 39,600 | 22 | % | ||||||
| Common fixed costs | 50,000 | 10.64 | ||||||||||||||||
| Income from operations | $ | 44,700 | 9.51 | % | ||||||||||||||
| 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 $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 $200,000.
Solutions
Expert Solution
Solution a:
| Income Statement - Butterfield Inc. - Division 1 (Product A advertised) | ||||||
| Particulars | Division 1 | Product A | Product B | |||
| Amount | % | Amount | % | Amount | % | |
| Sales | $330,000.00 | 100.00% | $156,000.00 | 100.00% | $174,000.00 | 100.00% |
| Varaible Cost | $192,000.00 | 58.18% | $70,200.00 | 45.00% | $121,800.00 | 70.00% |
| Contribution Margin | $138,000.00 | 41.82% | $85,800.00 | 55.00% | $52,200.00 | 30.00% |
| Fixed costs tracable to products | $43,600.00 | 13.21% | $15,180.00 | 9.73% | $28,420.00 | 16.33% |
| Product Responsibility Margin | $94,400.00 | 28.61% | $70,620.00 | 45.27% | $23,780.00 | 13.67% |
| Common Fixed costs | $20,300.00 | 6.15% | ||||
| Responsibility margin for division | $74,100.00 | 22.45% | ||||
| Exisitng responsibility margin | $55,100.00 | |||||
| Net Increase in responsibility margin | $19,000.00 | |||||
| Income Statement - Butterfield Inc. - Division 1 (Product B advertised) | ||||||
| Particulars | Division 1 | Product A | Product B | |||
| Amount | % | Amount | % | Amount | % | |
| Sales | $330,000.00 | 100.00% | $116,000.00 | 100.00% | $214,000.00 | 100.00% |
| Varaible Cost | $202,000.00 | 61.21% | $52,200.00 | 45.00% | $149,800.00 | 70.00% |
| Contribution Margin | $128,000.00 | 38.79% | $63,800.00 | 55.00% | $64,200.00 | 30.00% |
| Fixed costs tracable to products | $43,600.00 | 13.21% | $12,180.00 | 10.50% | $31,420.00 | 14.68% |
| Product Responsibility Margin | $84,400.00 | 25.58% | $51,620.00 | 44.50% | $32,780.00 | 15.32% |
| Common Fixed costs | $20,300.00 | 6.15% | ||||
| Responsibility margin for division | $64,100.00 | 19.42% | ||||
| Exisitng responsibility margin | $55,100.00 | |||||
| Net Increase in responsibility margin | $9,000.00 | |||||
Solution e:
| Divisional Income Statement - Butterfield Inc. - April | ||||||
| Particulars | Butterfield Inc. | Division 1 | Division 2 | |||
| Amount | % | Amount | % | Amount | % | |
| Sales | $490,000.00 | 100.00% | $290,000.00 | 100.00% | $200,000.00 | 100.00% |
| Varaible Cost | $234,000.00 | 47.76% | $174,000.00 | 60.00% | $60,000.00 | 30.00% |
| Contribution Margin | $256,000.00 | 52.24% | $116,000.00 | 40.00% | $140,000.00 | 70.00% |
| Fixed costs tracable to divisions | $147,300.00 | 30.06% | $60,900.00 | 21.00% | $86,400.00 | 43.20% |
| Product Responsibility Margin | $108,700.00 | 22.18% | $55,100.00 | 19.00% | $53,600.00 | 26.80% |
| Common Fixed costs | $50,000.00 | 10.20% | ||||
| Income from operations | $58,700.00 | 11.98% | ||||
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