Herriot Co

question 96

Essay

Herriot Co. has total fixed costs of $180,000 and a contribution margin ratio of 40%. Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000. Should the company spend this additional amount on advertising? (Support your answer with calculations.)

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Definitions:

Ordinary Simple Interest

Interest calculated on the principal amount of a loan or deposit, based on a simple interest rate over a specified period.

360-Day Year

A simplified calculation method used in finance, assuming a year consists of 360 days for the purpose of interest calculation.

Ordinary Simple Interest

Interest calculated on the principal amount of a loan or investment, based on the original amount without compounding.

360-Day Year

An accounting method that simplifies interest calculations by using 360 days as the length of a year.