WSR Inc
WSR Inc WSR’s Management Is Considering a Special Advertising Campaign That Will

question 4

Multiple Choice

WSR Inc.
WSR Inc. sells a variety of drink and food products including potato chips and soft drink. The segmented income statements for these two products are as follows:
$\begin{array}{lrr}&\underline{\text { Soft drink}}&\underline{\text { Chips}}\\\text { Sales } & \$ 800000 & \$ 900000 \\\text { Variable expenses } &\underline{ 200000} &\underline{ 315000} \\\text { Contribution margin } & 600000 & 585000 \\\text { Traceable fixed expense } & \underline{120000} & \underline{160000} \\\text { Segment margin } & \underline{\$ 480000} & \underline{\$ 425000}\end{array}$
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 campaign could increase sales of the soft drink division by $200 000 or increase sales of the chips division by $275 000.
-What will be the overall net effect on the company's total profits if the advertising focuses on chips?

• A) Increase of $148 750
• B) Increase of $275 000
• C) Increase of $178 750
• D) Increase of $245 000

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