Breakeven and an advertising decision at a multiproduct company (Learning Objectives 3, 4, 5)
Dick's Sporting Goods is a national retailer of sporting equipment. Last year, Dick's sales revenues totaled \(\$ 2.62\) billion. Total expenses were \(\$ 2.47\) billion. Of this amount, approximately \(\$ 1.88\) billion were variable, while the remainder were fixed. Since Dick's offers thousands of different products, its managers prefer to calculate the breakeven point in terms of sales dollars rather than units.
1. What is Dick's current operating income?
2. What is Dick's contribution margin ratio (round to the nearest percent)?
3. What is Dick's breakeven point in sales dollars (round to the nearest two decimals)? (Hint: The contribution margin ratio calculated in requirement two is already weighted by Dick's actual sales mix.)
4. What is Dick's current margin of safety percentage (round to the nearest percent)? What does it mean?
5. Dick's top management is deciding whether to embark on a \(\$ 0.05\) billion dollar nationwide advertisement campaign. The marketing firm has projected annual sales volume to increase by \(15 \%\) as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on Dick's annual operating income?