Assume that the Los Angeles division increases its promotion expense,a controllable fixed cost,by $10,000.As a result,revenues increase by $50,000.If variable expenses are tied directly to revenues,the new Los Angeles segment profit margin is:

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The increase in revenue is $50,000, and assuming variable expenses increase proportionally, the contribution margin remains the same. The increase in promotion expense is $10,000, so the net increase in profit is $50,000 - $10,000 = $40,000. If the original profit margin was $22,500, the new profit margin would be $22,500 + $40,000 = $62,500. However, since the original profit margin is not provided, the calculation assumes the $22,500 is the new profit margin after accounting for the changes.

Assume That the Los Angeles Division Increases Its Promotion Expense,a