A regional restaurant chain spends $90,000 for a local television advertising campaign that delivers $450,000 in incremental revenue. If the incremental contribution margin based on the incremental revenue for this campaign is 75%, then how much would the program return for each additional marketing dollar invested?

Question

Quizplus · Accepted Answer

The incremental contribution margin is 75%, which means for every additional dollar in revenue generated by the campaign, the restaurant chain keeps $0.75.

To calculate the return on investment (ROI) for the campaign, we can use the following formula:

ROI = (Incremental Revenue - Advertising Cost) / Advertising Cost

Plugging in the numbers given:

ROI = ($450,000 - $90,000) / $90,000
ROI = $360,000 / $90,000
ROI = 4

This tells us that for every dollar spent on advertising, the campaign generated an additional $4 in revenue.

To find out how much the program would return for each additional marketing dollar invested, we can use the following formula:

Return on each marketing dollar = Incremental contribution margin x ROI

Return on each marketing dollar = 0.75 x 4 
Return on each marketing dollar = $3

Therefore, the program would return $3 for each additional marketing dollar invested. The best choice is C.

A Regional Restaurant Chain Spends $90,000 for a Local Television