Special promotion—effects of a two-for-one sale Sam and Denny’s ice cream shop charges $2.50 for a cone. Variable expenses are $0.80 per cone, and fixed costs total $3,200 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 750 additional cones would be sold and that 950 cones would be given away. Advertising costs for the promotion would be $350.
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.
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