Would a combination of increased advertising (the option described in Requirement 1) and eliminating one of the lines be beneficial?

Conceptual Connection: Jim warns Kathy that eliminating the scented and musical lines would lower the sales of the regular line by 20 percent. Given this information would it be profitable to eliminate the scented and musical lines?

Segmented Income Statement Management Decision Making FunTime Company produces three lines of greeting cards: scented musical and regular. Segmented income statements for the past year are as follows: Kathy Bunker president of Fun Time 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 Fun Times 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 percent. 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 percent. 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 percent. Would a combination of increased advertising (the option described in Requirement 1) and eliminating one of the lines be beneficial? Identify the best combination for the firm.

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