A company with sales of $80,000 and variable expenses of $40,000 should spend $12,000 on increased advertising,if the increased advertising will increase sales by $22,000.
CM ratio = 50% so incremental CM = 22,000 *.5 which is less than $12,000.

Question

Quizplus · Accepted Answer

The correct calculation for incremental contribution margin is $22,000 x 0.5 = $11,000. This is less than the proposed advertising expense of $12,000. Therefore, the company should not spend $12,000 on increased advertising as it will not generate a positive contribution margin.

A Company with Sales of $80,000 and Variable Expenses of $40,000