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Calculate the effect of the promotion on operating income

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Reference no: EM131640400

Question - Pam and Lenny's ice cream shop charges $1.25 for a cone. Variable expenses are $0.35 per cone, and fixed costs total $1,800 per month. A "sweetheart" promotion is being planned for the second week in February. During the week, a person buying a cone at the regular price would receive a free cone for a friend. It is estimated that 400 additional cones would be sold and that 600 cones would be given away. Advertising costs for the promotion would be $120.

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.

Reference no: EM131640400

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