Baldwin company's product best has fixed costs of $100,000, capacity of 10,500 units, sales of 10,000 units, selling price per unit of $25, 1st shift labor costs per unit of $10, and a contribution margin ratio of 60% prior to overtime due to using the second shift. baldwin is considering investing in a marketing program that costs $22,000 and is projected to increase sales volume by 10%. all else constant, if baldwin makes this decision based on a minimum acceptable roi in the first year of 60% for the project, should they invest in this marketing program?

NO, it's not good to invest in this marketing program.

Explanation:

QuantityUnitTOTALIncome Statement

10,000  $ 25,00$ 250,000Total Net Sales

       $ 10,00-$ 100,000Variable Cost

         60%          $ 150,000Contributing Margin

                 -$ 100,000Anual Fixed Costs

         20%       $ 50,000Segment Margin

Under the actual conditions the company generate a contributing margin of 60% and a segment margin of 20%.

Quantity  Unit  TOTAL    Income Statement

   11,000  $ 25,00$ 275,000Total Net Sales

                        $ 10,00-$ 110,000Variable Cost

                      60%          $ 165,000Contributing Margin

                         -$ 122,000Anual Fixed Costs

                     16%    $ 43,000Segment Margin

If the program it's implemented we get the same Contribution Marging because it doesn't affect the Variable Cost but the Segment Margin it's negativly affected reducing it 4%.

It occurs because the Contribution Margin of the improvement doesn´t cover the total cost of the investment, it generates $15,000 of Contribution Maring but the Cost of the program it's $22,000.

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