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:

Disposable Income

The amount of money an individual or household has available to spend or save after income taxes have been deducted.

Disposable Income

Money that becomes available for household savings and expenditures after income taxes are subtracted.

MPS

Marginal Propensity to Save, which is the proportion of an increase in income that is saved rather than spent on consumption.

Saving

The process of setting aside a portion of current income for future use, typically in the form of investments or deposit accounts.