A Company Has Variable Costs That Are 3/8 the Value

question 25

Multiple Choice

A company has variable costs that are 3/8 the value of their sales revenues. Total net income for the most recent period was a profit of $123 400 and sales were $400 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $11 200. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?

• A) $358 933.33
• B) $215 360.00
• C) $400 000.00
• D) $417 920.00
• E) $696 533.33

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Definitions:

Discount Rate

The interest rate charged by central banks on loans extended to financial institutions or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

Acquire a New Customer

The process of attracting and converting prospects into someone who makes a purchase and becomes a client of the business.

Existing Customer

An individual or business that has previously purchased goods or services from a company, distinguishing them from new or potential customers.

Frederick Reichheld

A business strategist best known for his work on customer loyalty, including the development of the Net Promoter Score (NPS) as a measure of customer loyalty and satisfaction.