a) Explanation Contribution Margin: The process or theory which is used to judge the benefit given by each unit of the goods produced is called as contribution margin. Contribution margin is the excess amount of sales revenue over the variable costs. Contribution Margin Ratio : The contribution margin ratio expresses the contribution margin as a percentage of revenue. Compute the amount of projected operating income increase or decrease relative to initial projections for both the options: Initial projections Ad campaign Ordering system Projected sales revenue (A) $1,200,000 $1,260,000 (1) $1,200,000 Contribution margin ratio (B) 25% 25% 30% Contribution margin ( C ) = ( A ) × ( B ) 300,000 315,000 360,000 Less: Fixed costs ($80,000) ($100,000) (2) ($100,000) Projected operating income $220,000 215,000 260,000 Increase or decrease relative to initial projections: - ($5,000) $40,000 Table (1) The projected operating income will be decreased by $5,000 in case the ad campaign is chosen, and the projected operating income will be increased by $40,000 in case the ordering system is chosen. Working notes: Calculate the projected sales revenue for Ad campaign: It is projected that the new ad campaign is expected to increase the sales revenue by 5% b) To determine Find the percentage of sales revenue need to be increased to make the ad campaign as attractive as the ordering system.

Connect Access Card for Financial and Managerial Accounting

18th Edition

ISBN: 9781260006476

Author: Jan Williams, Susan Haka, Mark S Bettner, Joseph V Carcello

Publisher: McGraw-Hill Education

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Question

Chapter 20, Problem 8E

To determine

Compute the amount of projected operating income increase or decrease relative to initial projections for both the options.

To determine

Find the percentage of sales revenue need to be increased to make the ad campaign as attractive as the ordering system.

Expert Solution & Answer

Chapter 20 Solutions

Connect Access Card for Financial and Managerial Accounting

Ch. 20 - Prob. 1STQ Ch. 20 - Prob. 2STQ Ch. 20 - Prob. 3STQ Ch. 20 - Prob. 4STQ Ch. 20 - Prob. 5STQ Ch. 20 - Prob. 1DQ Ch. 20 - Prob. 2DQ Ch. 20 - Prob. 3DQ Ch. 20 - Prob. 4DQ Ch. 20 - 5. Define the relevant range of activity.

Ch. 20 - Prob. 6DQ Ch. 20 - Prob. 7DQ Ch. 20 - Prob. 8DQ Ch. 20 - Prob. 9DQ Ch. 20 - Prob. 10DQ Ch. 20 - Prob. 11DQ Ch. 20 - 12. Explain why businesses normally can reduce...Ch. 20 - Prob. 13DQ Ch. 20 - Prob. 14DQ Ch. 20 - Prob. 15DQ Ch. 20 - Prob. 1BE Ch. 20 - Prob. 2BE Ch. 20 - Prob. 3BE Ch. 20 - Prob. 4BE Ch. 20 - Prob. 5BE Ch. 20 - Prob. 6BE Ch. 20 - Prob. 7BE Ch. 20 - Prob. 8BE Ch. 20 - Prob. 9BE Ch. 20 - Prob. 10BE Ch. 20 - Prob. 1E Ch. 20 - Prob. 2E Ch. 20 - Prob. 3E Ch. 20 - Prob. 4E Ch. 20 - Prob. 5E Ch. 20 - Prob. 6E Ch. 20 - EXERCISE 20.7 Using Cost-Volume-Profit...Ch. 20 - Prob. 8E Ch. 20 - Prob. 9E Ch. 20 - Prob. 10E Ch. 20 - EXERCISE 20.11 Applying CVP Concepts Mathias...Ch. 20 - Prob. 12E Ch. 20 - EXERCISE 20.13 Determining a Bid Price Using CVP...Ch. 20 - Prob. 14E Ch. 20 - Prob. 15E Ch. 20 - Prob. 1AP Ch. 20 - PROBLEM 20.2A Estimating Costs and Profits Blaster...Ch. 20 - Prob. 3AP Ch. 20 - PROBLEM 20.4A Drawing a Cost-Volume- Profit...Ch. 20 - Prob. 5AP Ch. 20 - Prob. 6AP Ch. 20 - Prob. 7AP Ch. 20 - Prob. 8AP Ch. 20 - Prob. 1BP Ch. 20 - Prob. 2BP Ch. 20 - Prob. 3BP Ch. 20 - Prob. 4BP Ch. 20 - Prob. 5BP Ch. 20 - Prob. 6BP Ch. 20 - Prob. 7BP Ch. 20 - Prob. 8BP Ch. 20 - CASE 20.1 CVP from Different Points of View Assume...Ch. 20 - Prob. 2CTC Ch. 20 - Prob. 3CTC

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