Pam and Lenny’s ice cream shop charges $1.75 for a cone. Variable expenses are $0.42 per cone, and fixed costs total $2,500 per month. A "sweetheart" 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 625 additional cones would be sold and that 825 cones would be given away. Advertising costs for the promotion would be $170. Required: a. Calculate the effect of the promotion on operating income for the second week of February. (Do not round intermediate calculation and round your final answer to 2 decimal places.) b. Do you think the promotion should occur?
Pam and Lenny’s ice cream shop charges $1.75 for a cone. Variable expenses are $0.42 per cone, and fixed costs total $2,500 per month. A "sweetheart" 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 625 additional cones would be sold and that 825 cones would be given away. Advertising costs for the promotion would be $170.
Required:
a. Calculate the effect of the promotion on operating income for the second week of February. (Do not round intermediate calculation and round your final answer to 2 decimal places.)
b. Do you think the promotion should occur?
multiple choice
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Yes
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No
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