What is the profit maximizing level of advertising, Cost Accounting

Smith Corp. has determined that its contribution margin, (P - MC)/P, is 40%. A recent market research study found the following relationship between adverting outlays and sales revenue.

Advertising Outlays

Gross Revenues from Sales

$500,000

$4,000,000

$600,000

$4,500,000

$700,000

$4,900,000

$800,000

$5,200,000

$900,000

$5,420,000

$1,000,000

$5,600,000

a.  What is the profit maximizing level of advertising? Explain.

 

 

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