Arrow Products typically earns a contribution margin ratio of 25 percent and has current fixed costs of $80,000. Arrow's general manager is considering spending an additional $20,000 to do one of the following. 1. Start a new ad campaign that is expected to increase sales revenue by 5 percent. 2. License a new computerized ordering system that is expected to increase Arrow's contribu- tion margin ratio to 30 percent. Sales revenue for the coming year was initially forecast to equal $1,200,000 (that is, without imple- menting either of the given options). For each option, how much will projected operating income increase or decrease relative to initial predictions? a. b. By what percentage would sales revenue need to increase to make the ad campaign as attrac- tive as the ordering system?

Arrow Products typically earns a contribution margin ratio of 25 percent and has current fixed costs of $80,000. Arrow's general manager is considering spending an additional $20,000 to do one of the following. 1. Start a new ad campaign that is expected to increase sales revenue by 5 percent. 2. License a new computerized ordering system that is expected to increase Arrow's contribu- tion margin ratio to 30 percent. Sales revenue for the coming year was initially forecast to equal $1,200,000 (that is, without imple- menting either of the given options). For each option, how much will projected operating income increase or decrease relative to initial predictions? a. b. By what percentage would sales revenue need to increase to make the ad campaign as attrac- tive as the ordering system?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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