I need help with prb. #2, It is already solved and I understand how they solve it, I just don't understand the problems explanation. In other words, what do they mean when they say "because there would be no increase in fixed expenses, the increase in overall NOI is also 55000"?

Isn't there a increase in fixed expenses, that's the only way they can deduct the costs of 20000 from the incremental contribution margin.

MLILIS The business staff of the law firm Frampton, Davis & Smythe has constructed the following report that breaks down the firm's overall results for last month into two business segments-family law and com- mercial law: Company Total Family Law Commercial Law Revenues from clients ........... Variable expenses............... Contribution margin ............. Traceable fixed expenses ........ Segment margin ................ Common fixed expenses......... Net operating income (loss)....... $1,000,000 220,000 780,000 670,000 110,000 60,000 $ 50,000 $400,000 100,000 300,000 280,000 20,000 24.000 $ (4,000) $600,000 120,000 480,000 390,000 90,000 36,000 $ 54,000 However, this report is not quite correct. The common fixed expenses such as the managing partner's sal- ary, general administrative expenses, and general firm advertising have been allocated to the two segments based on revenues from clients. Required: 1. Redo the segment report, eliminating the allocation of common fixed expenses. Would the firm be better off financially if the family law segment were dropped? (Note: Many of the firm's commercial law clients also use the firm for their family law requirements such as drawing up wills.) 2. The firm's advertising agency has proposed an ad campaign targeted at boosting the revenues of the family law segment. The ad campaign would cost $20,000, and the advertising agency claims it would increase family law revenues by $100,000. The managing partner of Frampton, Davis & Smythe believes this increase in business could be accommodated without any increase in fixed expenses. Estimate the effect this ad campaign would have on the family law segment margin and on the firm's overall net operating income. . 2. The ad campaign would increase the family law segment margin by $55,000 as follows: ..... Increased revenues from clients ........ Family law contribution margin ratio ($300,000 - $400,000)... Increased contribution margin ........ Less cost of the ad campaign. Increased segment margin ........... $100,000 x 75% $75,000 20,000 $55,000 Because there would be no increase in fixed expenses (including common fixed expenses), the increase in overall net operating income is also $55,000