Homework:M07: C07 Foundation Assignment

Part 8 of 8

Question 4

Score: 1.68 of 2 points

Peter Medical Supply is a retailer of home medical equipment. Last year, Peter's sales revenues totaled $6,300,000. Total expenses were $2,200,000. Of this amount, approximately$1,260,000 were variable, while the remainder were fixed. Since Peter's offers thousands of different products, its managers prefer to calculate the breakeven point in terms of sales dollars rather than units.

Requirement 4. 's top management is deciding whether to embark on aadvertising campaign. The marketing firm has projected annual sales volume to increase by % 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 Peter embarks on this advertising campaign, sales revenue and variable costs will

? by ?%, whichwill cause the contribution margin to

? by ?%.

However, fixed costs will

? by ?

due to

the advertising.

What effect would this advertising campaign have on 's annual operating income?

The effect would be an (increase or decrease?)? operating income of ?