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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?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 37P: Katayama Company produces a variety of products. One division makes neoprene wetsuits. The divisions...
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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. By what percentage would sales revenue need to increase to make the ad campaign as attrac- tive as the ordering system? b. foatures an erasable ballpoint pen, which sells for $1.75 per unit. Management
Transcribed Image Text: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. By what percentage would sales revenue need to increase to make the ad campaign as attrac- tive as the ordering system? b. foatures an erasable ballpoint pen, which sells for $1.75 per unit. Management
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