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Business
AccountingManagerial Accounting: The Cornerstone of Business Decision-Making7th Edition

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Chapter 7, Problem 6DQ
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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Solutions

Chapter
Section
Problem 1DQ
Problem 2DQ
Problem 3DQ
Problem 4DQ
Problem 5DQ
Problem 6DQ
Problem 7DQ
Problem 8DQ
Problem 9DQ
Problem 10DQ
Problem 11DQ
Problem 12DQ
Problem 13DQ
Problem 14DQ
Problem 15DQ
Problem 1MCQ
Problem 2MCQ
Problem 3MCQ
Problem 4MCQ
Problem 5MCQ
Problem 6MCQ
Problem 7MCQ
Problem 8MCQ
Problem 9MCQ
Problem 10MCQ
Problem 11MCQ
Problem 12MCQ
Problem 13BEA
Problem 14BEA
Problem 15BEA
Problem 16BEA
Problem 17BEA
Problem 18BEA
Problem 19BEA
Problem 20BEA
Problem 21BEA
Problem 22BEA
Problem 23BEA
Problem 24BEB
Problem 25BEB
Problem 26BEB
Problem 27BEB
Problem 28BEB
Problem 29BEB
Problem 30BEB
Problem 31BEB
Problem 32BEB
Problem 33BEB
Problem 34BEB
Problem 35E
Problem 36E
Problem 37E
Problem 38E
Problem 39E
Problem 40E
Problem 41E
Problem 42E
Problem 43E
Problem 44E
Problem 45E
Problem 46E
Problem 47E
Problem 48E
Problem 49E
Problem 50E
Problem 51P
Problem 52P
Problem 53P
Problem 54P
Problem 55P
Problem 56P
Problem 57P
Problem 58P
Problem 59P
Problem 60P
Problem 61P
Problem 62P
Problem 63P
Problem 64P
Problem 66C
Problem 1MTC
Problem 2MTC
Problem 3MTC
Problem 4MTC
Problem 5MTC
Problem 6MTC
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
236 views

Suppose a firm with a contribution margin ratio of 0.3 increased its advertising expenses by $10,000 and found that sales increased by $30,000. Was it a good decision to increase advertising expenses? Suppose that the contribution margin ratio is now 0.4. Would it be a good decision to increase advertising expenses?

To determine

Explain if the decision to increase advertising expense with the given contribution margin ratio was right. Also, explain the decision with increased contribution margin ratio.

Explanation

Contribution Margin Ratio:

Contribution margin ratio refers to the balance of sales dollar that is left after total variable cost is recovered. It is calculated by dividing unit contribution margin with the price. The contribution margin ratio is used to determine the remaining profit after the fixed cost is recovered.

The decision to increase the advertisement expense was not appropriate. The increase in contribution margin is calculated and is compared with the increase in advertisement expense to check the viability of the decision.

Use the following formula to compute the increased contribution:

Increased Contribution=Contribution margin ratio×Sales

Substitute 0.03 for contribution margin ratio and $30,000 for sales.

Increased Contribution=0.03×$30,000=$9,000

Therefore, the increased contribution is less than the increased advertising expense. The contribution is $1,000($10,000−$9,000) less than the advertising expense

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Ch-7 P-1DQCh-7 P-2DQCh-7 P-3DQCh-7 P-4DQCh-7 P-5DQCh-7 P-6DQCh-7 P-7DQCh-7 P-8DQCh-7 P-9DQCh-7 P-10DQ
Ch-7 P-11DQCh-7 P-12DQCh-7 P-13DQCh-7 P-14DQCh-7 P-15DQCh-7 P-1MCQCh-7 P-2MCQCh-7 P-3MCQCh-7 P-4MCQCh-7 P-5MCQCh-7 P-6MCQCh-7 P-7MCQCh-7 P-8MCQCh-7 P-9MCQCh-7 P-10MCQCh-7 P-11MCQCh-7 P-12MCQCh-7 P-13BEACh-7 P-14BEACh-7 P-15BEACh-7 P-16BEACh-7 P-17BEACh-7 P-18BEACh-7 P-19BEACh-7 P-20BEACh-7 P-21BEACh-7 P-22BEACh-7 P-23BEACh-7 P-24BEBCh-7 P-25BEBCh-7 P-26BEBCh-7 P-27BEBCh-7 P-28BEBCh-7 P-29BEBCh-7 P-30BEBCh-7 P-31BEBCh-7 P-32BEBCh-7 P-33BEBCh-7 P-34BEBCh-7 P-35ECh-7 P-36ECh-7 P-37ECh-7 P-38ECh-7 P-39ECh-7 P-40ECh-7 P-41ECh-7 P-42ECh-7 P-43ECh-7 P-44ECh-7 P-45ECh-7 P-46ECh-7 P-47ECh-7 P-48ECh-7 P-49ECh-7 P-50ECh-7 P-51PCh-7 P-52PCh-7 P-53PCh-7 P-54PCh-7 P-55PCh-7 P-56PCh-7 P-57PCh-7 P-58PCh-7 P-59PCh-7 P-60PCh-7 P-61PCh-7 P-62PCh-7 P-63PCh-7 P-64PCh-7 P-66CCh-7 P-1MTCCh-7 P-2MTCCh-7 P-3MTCCh-7 P-4MTCCh-7 P-5MTCCh-7 P-6MTC

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