Pong Incorporated's income statement for the most recent month is given below.
-The marketing department believes that a promotional campaign for Store H costing $8,000 will increase the store's sales by $15,000.If the campaign is adopted,overall company net operating income should:
A)decrease by $5,000
B)decrease by $5,500
C)increase by $2,000
D)increase by $7,000

Question

Pong Incorporated's income statement for the most recent month is given below. 
-The marketing department believes that a promotional campaign for Store H costing $8,000 will increase the store's sales by $15,000.If the campaign is adopted,overall company net operating income should:
A)decrease by $5,000 
B)decrease by $5,500 
C)increase by $2,000 
D)increase by $7,000

Quizplus · Accepted Answer

CM ratio = Contribution margin F1F1F1S1F1F1F10 Sales = $60,000 F1F1F1S1F1F1F10 $90,000 = 2/3
Change in contribution margin = CM ratio F1F1F1S1F1F1F10 Change in sales = 2/3 F1F1F1S1F1F1F10 $15,000 = $10,000
Change in net operating income = Change in contribution margin - Cost of promotional campaign
= $10,000 - $8,000 = $2,000

Pong Incorporated's Income Statement for the Most Recent Month Is