E$3$ Q$10$Scott Medical Supply is a retailer of home medical equipment. Last$$ year, Scott$\text{'}$s sales revenues totaled $ $6$ comma $700$ comma $000.$ Total expenses were $ $2$ comma $900$ comma $000.$ Of this$$ amount, approximately $ $1$ comma $608$ comma $000$ were$$ variable, while the remainder were fixed. Since Scott$\text{'}$s offers thousands of different$$ products, its managers prefer to calculate the breakeven point in terms of sales dollars rather than units.

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Part $1$

Requirement $1.$ What is Scott$\text{'}$s current operating$$ income?

Begin by identifying the formula to compute the operating income.

$$

$$

$=$

Operating income

Part $2$

The operating income is

$.$

Part $3$

Requirement $2.$ What is Scott$\text{'}$s contribution margin$$ ratio?

Begin by identifying the formula to compute the contribution margin ratio.

$-$:

$=$

Contribution margin ratio

Part $4$

$($Enter the ratio as a whole$$ percent.$)$

The contribution margin ratio is

$\%.$

Part $5$

Requirement $3.$ What is the$$ company's breakeven point in sales$$ dollars? $($Hint: The contribution margin ratio calculated in Requirement $2$ is already weighted by the$$ company's actual sales$$ mix.$)$

Begin by identifying the formula to compute the breakeven point in sales dollars.

$($

$+$

$)-$:

$=$

Breakeven sales in dollars

Part $6$

$($Round your answer up to the nearest whole$$ dollar.$)$

The breakeven point in sales dollars is

$.$

Part $7$

Requirement $4.$ Scott$\text{'}$s top management is deciding whether to embark on a $ $240$ comma $000$ advertising campaign. The marketing firm has projected annual sales volume to increase by $18\%$ as a result of this campaign. Assuming that the projections are$$ correct, what effect would this advertising campaign have on the$$ company's annual operating$$ income?

If Scott embarks on this advertising campaign, sales revenue and variable costs will

by

$\%,$ which

will cause the contribution margin to

by

$\%.$ However, fixed costs will

by

due to

the advertising.

Part $8$

What effect would this advertising campaign have on Scott$\text{'}$s annual operating$$ income?

The effect would be

operating income of

$.$