**Title: Evaluating a Valentine’s Day Promotion for Jen and Barry’s Ice Cream Shop****Objective:**To assess the impact of a Valentine’s Day promotional offer on the operating income and to determine the viability of such a promotion for Jen and Barry’s ice cream shop.**Scenario:**Jen and Barry’s ice cream shop charges $1.55 for a cone. The shop incurs variable expenses of $0.25 per cone and has fixed costs amounting to $2,200 per month. An upcoming Valentine’s Day promotion is being considered for the second week of February. During this promotional period, a customer purchasing a cone at the regular price would receive an additional cone for free for their friend. Estimates suggest that an additional 725 cones would be sold, and 925 cones would be given away. The advertising cost for this promotion would be $140.**Required Analysis:****a. Calculate the effect of the promotion on operating income for the second week of February.****b. Provide your opinion on whether the promotion should occur based on the calculated effect on operating income.****Analysis:**1. **Sales and Variable Costs:** - Regular Cone Price: $1.55 - Variable Expenses per Cone: $0.25 - Fixed Costs: $2,200 per month - Advertising Costs for Promotion: $1402. **Promotion Week Estimates:** - Additional Cones Sold: 725 - Free Cones Given Away: 925**Calculation Steps for Required a:**1. **Calculate additional revenue from cones sold:** Additional Cones Sold = 725 Revenue per Additional Cone = $1.55 Total Additional Revenue = 725 * $1.552. **Calculate variable cost for additional cones sold:** Variable Cost per Cone = $0.25 Total Variable Cost for Additional Cones Sold = 725 * $0.253. **Calculate variable cost for free cones given away:** Free Cones Given Away = 925 Total Variable Cost for Free Cones Given Away = 925 * $0.254. **Calculate total additional variable expenses:** Total Additional Variable Expenses = Total Variable Cost for Additional Cones Sold + Total Variable Cost for Free Cones Given Away5. **Calculate additional contribution margin:** Additional Contribution Margin = Total Additional Revenue - Total Additional Variable **Jen and Barry’s Ice Cream Shop Promotion Analysis**Jen and Barry's ice cream shop charges $1.55 for a cone. Variable expenses are $0.25 per cone, and fixed costs total $2,200 per month. A Valentine’s Day promotion is being planned for the second week of February. During this week, a person buying a cone at the regular price would receive a free cone for a friend. It is estimated that 725 additional cones would be sold and that 925 cones would be given away. Advertising costs for the promotion would be $140.**Required:**a. Calculate the effect of the promotion on operating income for the second week of February.b. Do you think the promotion should occur?**Instructions:**Complete this question by entering your answers in the tabs below.### Required ACalculate the effect of the promotion on operating income for the second week of February.- Note: Do not round intermediate calculations and round your final answer to 2 decimal places.**Net Effect on Operating Income:**- Net: [Input box]- In Operating Income: [Input box][Buttons: < Required A | Required B > ]This text-based input form is provided to assess how advertising promotions can impact operating income by examining fixed costs, variable costs, and additional sales generated through the promotion.

Earning before interests and taxes is called as operating income. It is calculated as deducting the…

Answered: Jen and Barry's ice cream shop charges…

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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Jen and Barry's ice cream shop charges $1.45 for a cone. Variable expenses are $0.22 per cone, and fixed costs total $2,500 per month. A Valentine's Day promotion is being planned for the second week of February. During this week, a person buying a cone at the regular price would receive a free cone for a friend. It is estimated that 650 additional cones would be sold and that 850 cones would be given away. Advertising costs for the promotion would be $135. Required: a. Calculate the effect of the promotion on operating income for the second week of February. b. Do you think the promotion should occur? Complete this question by entering your answers in the tabs below. Required A Require B Do you think the promotion should occur?
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