Pong Incorporated\'s income statement for the most recent month is given below.
ID: 2413898 • Letter: P
Question
Pong Incorporated's income statement for the most recent month is given below.
The marketing department believes that a promotional campaign for Store H costing $8,800 will increase the store's sales by $15,500. If the campaign is adopted, overall company net operating income should:
decrease by $3,875
decrease by $4,262
increase by $2,825
increase by $6,700
Total Store G Store H Sales $160,400 $62,200 $98,200 Variable expenses 50,052 25,502 24,550 Contribution margin 110,348 36,698 73,650 Traceable fixed expenses 69,300 20,800 48,500 Segment margin 41,048 $15,898 $25,150 Common fixed expenses 24,400 Net operating income $ 16,648Explanation / Answer
Variable expenses percentage of store H =
24550/98200 *100 = 25%
Total sales of store H after promotional campaign =
98200+15500 = 113700
Variable expenses = 113700*25% = 28425
New Contribution margin = 113700 - 28425 = 85275
New Segment margin of store H = Contribution margin - Traceable fixed expenses - Cost of promotional campaign
= 85275 - 48500 - 8800 = 27975
Previous segment margin of store H = 25150
Increase in margin = 27975 - 25150 = 2825
Answer is "increase by $2,825"