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An Arrow product typically earn a contribution margin ratio of 25 percent and has current fixed costs of $80,000. Arrows general manager is considering 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. licence a new computerized ordering system that is expected to increase contribution margin ratio to 30 percent.

sales revenue for the coining year was initially forecast to equal $1,200,000 (that is, without implementing either of the above options).

a. for each option, how much will projected operating income increase or drecrease relative to initial predictions?

b. by what percentage would sales revenue need to increase to make the ad campaign as acttractive as the ordering system?

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M91524889

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