Terry medical Supplies is a retailer of home medical equipment. Last year, Terry’s sales revenues totaled $ 6,100,000. Total expenses were $ 2,590,000. Of this amount, approximately $ 1,342,000 were variable, while the remainder were fixed. Since Terry offers thousands of different products, its managers prefer to calculate the breakeven point in terms of sales dollars, rather than units.
1. What is Terry’s current operating income?
2. What is Terry’s contribution margin ratio?
3. What is the company breakeven point in sales dollars?
4. Top management is deciding whether to embark on a $ 260,000 advertising campaign. The marketing firm has projected annual sales volume to increase by 16% as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on Terry’s annual operating income?