Using cost volume-profit formula

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Reference no: EM13793195

Using Cost Volume-profit Formula

Arrow Products typically earns a contribution margin ratio of 25 percent and has current fixed cost of $80,000. Arrow's general manager is considering spending an additional $20,000 to do one of the following:

1. Start a new ad campaign that is expected to increase sales revenue by 5 percent.

2. License a new computerized ordering system that is expected to increase Arrow's contribution margin ratio to 30 percent.

Sales revenue for the coming year was initially forecast to equal $1,200,000 (that is, without implementing either of the above options).

a. For each option, how much will projected operating income increase or decrese relative to initial productions?

b. By what percentage would sales revenue need to increase to make ad campaign as attractive as the ordering system?

Reference no: EM13793195

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