Ghent Medical Supply is a retailer of home medical equipment. Last year, Ghent's sales revenues totaled $6,300,000. Total expenses were $2,200,000. Of this amount, approximately $1,260,000 were variable, while the remainder were fixed. Since Ghent's offers thousands of different products, its managers prefer to calculate the breakeven point in terms of sales dollars rather than units.
Requirements
1. What is Ghent's current operating income?
2. What is Ghent's contribution margin ratio?
3. What is Ghent's breakeven point in sales dollars.
4. Ghent's top management is deciding whether to embark on a $200,000 advertisement campaign. The marketing firm has projected annual sales volume to increase by 20% as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on the company's annual operating income?