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?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 10EB: Keleher Industries manufactures pet doors and sells them directly to the consumer via their web...

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