Sales $90,000,000 Cost of goods sold 36,000,000 Administrative expenses (all fix
ID: 2413727 • Letter: S
Question
Sales
$90,000,000
Cost of goods sold
36,000,000
Administrative expenses (all fixed)
21,000,000
Advertising expense
9,000,000
Sales commissions
6,750,000
Other marketing expenses (all fixed)
9,250,000
Operating income
$ 8,000,000
A retailer uses flexible budgeting as a planning tool. The company’s original budget for the upcoming year is shown below.Sales
$90,000,000
Cost of goods sold
36,000,000
Administrative expenses (all fixed)
21,000,000
Advertising expense
9,000,000
Sales commissions
6,750,000
Other marketing expenses (all fixed)
9,250,000
Operating income
$ 8,000,000
The manager of the retailer’s Marketing Department believes sales volume will increase by 10% if the advertising budget is increased by $5,000,000. Should the retailer approve the increased advertising request? A. Yes, because the increase in sales is $4,000,000 greater than the increase in advertising costs. B. No, because advertising is 10% of sales, so the maximum increase in sales would be $900,000. C. Yes, because operating income would increase by $400,000. D. No, because operating income would decrease by $275,000.Explanation / Answer
Answer
D ) no , beccause operating income would decrease by 275000
incremental sales 9000000
less;incremental cost of goods sold -3600000
less;incremental sales commission -675000
less;incremental advertising cost -5000000
incremental operating income loss -275000
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