Helton Medical Supplies is a retailer of home medical equipment. Last year, Helton's sales revenues totaled $6,500,000. Total expenses were $2,700,000. Of this amount, approximately $1,560,000 were variable, while the remainder were fixed. Since Helton 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 Helton's current operating income?
2. What is Helton's contribution margin ratio?
3. What is Helton's breakeven point in sales dollars? What does it mean?
4. Top management is deciding whether to embark on a $230,000 advertisement campaign. The marketing firm has projected annual sales volume to increase by 10% as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on Helton's annual operating income?