Using a Responsibility Income Statement

question 97

Essay

Using a responsibility income statement
Shown below is the current monthly income statement of Metro Video, by profit centers:
METRO VIDEO
Income Statement by Profit Centers
For the Month Ended April 30, 20__

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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Definitions:

Marginal Social Benefit

The additional benefit to society from producing one more unit of a good or service.

Marginal Benefit

The bonus satisfaction or benefit gained by consuming one more unit of a good or service.

Marginal Social Benefit

The additional benefit to society from consuming one more unit of a good or service.

Street Cleanings

Municipality-provided services that remove dirt, litter, and debris from roads and public spaces to maintain cleanliness and sanitation.