Question
WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income statements for these two products are as
WSR Inc. sells a variety of drink and food products including potato chips and sodas. The segmented income statements for these two products are as follows:
|
| Sodas |
| Chips |
| Sales | $800,000 |
| $900,000 |
| Variable expenses | 200,000 |
| 315,000 |
| Contribution margin | 600,000 |
| 585,000 |
| Traceable fixed expense | 120,000 |
| 160,000 |
| Segment margin | $480,000 |
| $425,000 |
WSR's management is considering a special advertising campaign that will run during a major sporting event. The advertising campaign is expected to cost $30,000 and only one product can be featured. In-house marketing studies show that the $30,000 advertising campaign could (1) increase sales of the soda division by 25% or (2) increase the selling price of the chips division by 20%.
16. Refer to the WSR Inc. information above. What will be the overall net effect on the company's total profits if the $30,000 advertising focuses on sodas with its 25% increase in sales?
| a. | Increase of $170,000 |
| b. | Increase of $150,000 |
| c. | Increase of $120,000 |
| d. | Increase of $200,000 |
17. Refer to the WSR Inc. information above. What will be the overall net effect on the company's total profits if the $30,000 advertising focuses on chips with its 20% increase in the selling price?
| a. | Increase of $170,000 |
| b. | Increase of $150,000 |
| c. | Increase of $120,000 |
| d. | Increase of $200,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started