Kick-A’s Sporting Goods is a retailer of sporting equipment. Last year, Kick-A’s sales revenues totalled $5,000,000. Total expenses were $2,100,000. Of this amount, approximately $1,500,000 were variable, while the remainder were fixed. Since Kick-A’s Sporting Goods offers thousands of different products, its managers prefer to calculate the break-even point in terms of sales dollars rather than units.

Requirements 

1. What is Kick-A’s Sporting Goods’ current operating income? (Prepare a contribution margin format income statement.) 

2. What is Kick-A’s contribution margin ratio? 

3. What is Kick-A’s break-even point in sales dollars? 

4. Top management is deciding whether to embark on a $200,000 advertising campaign. The marketing firm has projected annual sales volume to increase by 15% as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on Kick-A’s Sporting Goods’ annual operating income? 

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Check sum: (2) Contribution margin ratio is 70%.