A Company That Manufactures Baseball Gloves Is Contemplating Whether to Increase

question 9

Multiple Choice

A company that manufactures baseball gloves is contemplating whether to increase its advertising budget by $3 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $4.8 million next year.If the advertising campaign fails,the company expects sales to increase by only $900,000 next year.If the advertising budget is not increased,the company expects sales to increase by $450,000.Identify the possible outcomes in this decision-making problem.

• A) Two choices: (1)increase the budget and (2)do not increase the budget.
• B) Four consequences resulting from the Increase/Do Not Increase and Successful/Not Successful combinations.
• C) Two choices: (1)campaign is successful and (2)campaign is not successful.
• D) The increase in sales dollars next year.

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Definitions:

Fixed Overhead

Refers to the total of all indirect costs that remain constant regardless of the level of production or business activity.

Absorption Costing

Absorption Costing is an accounting method that includes all of the manufacturing costs (direct materials, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Variable Overhead

Costs that fluctuate with production volume, such as utilities or materials used in production.

Variable Costing

A costing method that includes variable manufacturing costs—direct materials, labor, and variable overhead—in the cost of production.