Wellington Medical Supply is a retailer of home medical equipment. Last year, Wellington's sales revenues totaled $6,300,000.

Question:

Wellington Medical Supply is a retailer of home medical equipment. Last year, Wellington'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 Wellington'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 Wellington's current operating income?
2. What is Wellington's ratio?
3. What is the company's breakeven point in sales dollars? (Hint: The ratio calculated in Requirement 2 is already weighted by the company's actual sales mix.)
4. Wellington's top management is deciding whether to embark on a $190,000 advertising 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 the company's annual operating income?
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...