Chapter 12, Problem 12.15E

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis: The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution Margin Ratio:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin ratio is calculated with the help of following formulas:

  $\text{Contribution Margin }\left(\text{Ratio}\right)\text{ = }\frac{\text{(Sales price per unit -Variable Cost per unit)}}{\text{Sales price per unit}}\times 100$

Requirement-a:

To Calculate:

The effect of the promotion on the operating income

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis: The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution Margin Ratio:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin ratio is calculated with the help of following formulas:

  $\text{Contribution Margin }\left(\text{Ratio}\right)\text{ = }\frac{\text{(Sales price per unit -Variable Cost per unit)}}{\text{Sales price per unit}}\times 100$

Requirement-b:

If the promotion should occur