Problem:
Regal Flair Enterprises has 2 product lines: jewellery and women's apparel. Cost and revenue data for each product line for the current month are as follows:
Product lines
Jewlery Apparel
Sales........................................................................ $800,000 $450,000
Variable costs as a % of sales 55% 28%
Fixed costs traceable to product line $200,000 $250,000
In addition to the costs shown above, the company incurs monthly fixed costs of $100,000 common to both product lines.
INSTRUCTIONS:
A-prepare Regal Flair Enterprises responsibility income statement for the current month. Report the responsibility margin for each product line and income from operations for the company as a whole. Also include columns showing all dollar amounts as percentages of sales.
B-assumr that a marketing survey shows that $75,000 monthly advertising campaign focused on either product line should increase that product lines monthly advertising campaign focused on either product line should increase that product lines monthly sales by approx $150,000. Do you recommend this additional advertising for either or both product lines? Show computation to support your conclusions.
C-management is considering expanding one of the companys 2 product lines. An investment of a given dollar amount is expected to increase the sales of the expanded product line by $300,000. It is also expectd to increase the traceable fixed costs of the expanded product line by 75%. On the basis of this information which product line do you recommend expanding? Explain the basis for your conclusion