Herriot Company has total fixed costs of $180,000 and a contribution margin ratio of 40%. Assume tht an additional advertising expenditure of $4,000 would increase sales by $8,000. Should the company spend this additional amount on advertising? Explain either a yes or no response and show calculations to support your answer.
We need to compare the increase in contribution margin due to higher sales against the increase in advertising.
The solution explains how to decide whether the company spend this additional amount on advertising