Chocolatiers Company

Chocolatiers Company produces two products: Solid chocolate and powdered chocolate. Cost and

revenue data for each product line for the current month are as follows:

      Product Lines

   Solid                Powdered

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $850,000 $870,000

Contribution margin as a percentage of sales . . . . . . . . . . . . . . . . . . 45% 55%

Fixed costs traceable to product lines . . . . . . . . . . . . . . . . . . . . . . . . $175,000 $250,000

In addition, fixed costs that are common to both product lines amount to $125,000.

Instructions

a. Prepare ChocolatiersAc€?cs 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. According to the analysis performed in part a, which product line is more profitable? Should

the common fixed costs be considered when determining the profitability of individual product

lines? Why or why not?

c. Chocolatiers has $15,000 to be used in advertising for one of the two product lines and expects

that this expenditure will result in additional sales of $50,000. How should the company

decide which product line to advertise?