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Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall
Edition 9ISBN: 0073527068Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall
Edition 9ISBN: 0073527068Special promotion—effects of a two-for-one sale Sam and Denny’s ice cream shop charges $2.50 for a cone. Variable expenses are $0.80 per cone, and fixed costs total $3,200 per month. A “sweetheart” promotion is being planned for the second week of February. During this week, a person buying a cone at the regular price would receive a free cone for a friend. It is estimated that 750 additional cones would be sold and that 950 cones would be given away. Advertising costs for the promotion would be $350.
Required:
a.Calculate the effect of the promotion on operating income for the second week of February.
b. Do you think the promotion should occur? Explain your answer.
Verified
Step 1 of 5
The Operating Income or loss of S and D’s ice cream shop of cones before adaption of the promotion is computed as under.
The table showing computation of contribution margin per unit is as follows.
| Computation of contribution margin per unit | |
| Details | Amount ($) |
|
|
|
| Selling price per unit | 2.50 |
| Less: Variable expenses per unit | (0.80) |
| Contribution margin per unit | 1.70 |
Step 2 of 5
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Step 5 of 5
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