Ring, Incorporated's income statement for the most recent month is given below.

For each of the following questions, refer back to the original data.
-The marketing department believes that a promotional campaign at Store P costing $5,000 will increase sales by $15,000.If the campaign is adopted,overall company net operating income should:
A)decrease by $800
B)decrease by $5,800
C)increase by $5,800
D)increase by $10,000

Question

Ring, Incorporated's income statement for the most recent month is given below.
 
For each of the following questions, refer back to the original data. 
-The marketing department believes that a promotional campaign at Store P costing $5,000 will increase sales by $15,000.If the campaign is adopted,overall company net operating income should:
A)decrease by $800 
B)decrease by $5,800 
C)increase by $5,800 
D)increase by $10,000

Quizplus · Accepted Answer

CM ratio = Contribution margin F1F1F1S1F1F1F10 Sales = $56,000 F1F1F1S1F1F1F10 $200,000 = 0.28
Change in contribution margin = CM ratio F1F1F1S1F1F1F10 Change in sales = 0.28 F1F1F1S1F1F1F10 $15,000 = $4,200
Change in net operating income = Change in contribution margin - Cost of promotional campaign
= $4,200 - $5,000 = -$800

Ring, Incorporated's Income Statement for the Most Recent Month Is