(Solved by Humans)-Problem 8-39 Segmented Income Statement, Management Decision Making FunTime Company produces...

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Problem 8-39  Segmented Income Statement, Management Decision Making FunTime Company produces three lines of greeting cards: scented, musical, and regular. Seg- mented income statements for the past year are as follows:     Scented   Musical   Regular   Total   Sales $10,000   $15,000   $25,000   $50,000   Less: Variable expenses 7,000   12,000   12,500   31,500   Contribution margin $  3,000   $  3,000   $12,500   $18,500   Less: Direct fixed expenses 4,000   5,000   3,000   12,000   Segment margin $ (1,000)   $ (2,000)   $  9,500   $  6,500   Less: Common fixed  expenses             7,500   Operating income (loss)             $ (1,000)     Kathy Bunker, president of FunTime, is concerned about the financial performance of her firm and is seriously considering dropping both the scented and musical product lines. However, before making a final decision, she consults Jim Dorn, FunTime’s vice president of marketing. Required: 1.       CONCEPTUAL CONNECTION Jim believes that by increasing advertising by $1,000 ($250 for the scented line and $750 for the musical line), sales of those two lines would increase by 30%. If you were Kathy, how would you react to this information? 2.       CONCEPTUAL CONNECTION Jim warns Kathy that eliminating the scented and musical lines would lower the sales of the regular line by 20%. Given this information, would it be profitable to eliminate the scented and musical lines? 3.       CONCEPTUAL CONNECTION Suppose that eliminating either line reduces sales of the regular cards by 10%. Would a combination of increased advertising (the option described in Requirement 1) and eliminating one of the lines be beneficial? Identify the best combina- tion for the firm.