Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

Exercise 19

Special promotion-effects of a two-for-one sale Pam and Lenny's ice cream shop charges $1.25 for a cone. Variable expenses are $0.35 per cone, and fixed costs total $1,800 per month. A "sweetheart" promotion is being planned for the second week of February. During this week, a person buying a cone at the regular price would receive a free cone for a friend. It is estimated that 400 additional cones would be sold and that 600 cones would be given away. Advertising costs for the promotion would be $120.
Required:
a. Calculate the effect of the promotion on operating income for the second week of February.
b. Do you think the promotion should occur? Explain your answer.