Question

Pong Incorporated's income statement for the most recent month is given below.   Total   Store G   Store...

Pong Incorporated's income statement for the most recent month is given below.

  Total   Store G   Store H
  Sales $160,400 $62,200 $98,200
  Variable expenses 50,052 25,502 24,550
  Contribution margin 110,348 36,698 73,650
  Traceable fixed expenses 69,300 20,800 48,500
  Segment margin 41,048 $15,898 $25,150
  Common fixed expenses 24,400
  Net operating income $ 16,648

The marketing department believes that a promotional campaign for Store H costing $8,800 will increase the store's sales by $15,500. If the campaign is adopted, overall company net operating income should:

decrease by $3,875

decrease by $4,262

increase by $2,825

increase by $6,700

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Answer #1

Variable expenses percentage of store H =

24550/98200 *100 = 25%

Total sales of store H after promotional campaign =

98200+15500 = 113700

Variable expenses = 113700*25% = 28425

New Contribution margin = 113700 - 28425 = 85275

New Segment margin of store H = Contribution margin - Traceable fixed expenses - Cost of promotional campaign

= 85275 - 48500 - 8800 = 27975

Previous segment margin of store H = 25150

Increase in margin = 27975 - 25150 = 2825

Answer is "increase by $2,825"

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