The correct answer is shown, but i would like to get the calculation and how we

Question

The correct answer is shown, but i would like to get the calculation and how we came to such conclusion. Please, show your steps

Suppose you are considering adding another sales associate to the floor. Your current total sales are $40,000 per day and your cost of sales, including the sales associates are $66,000 per day. The new sales associate should increase sales by $1,000 per day and result in an increase in the cost of sales, including the associates salary, of $1,500. Would you hire the new sales associate? Depends on the minimum acceptable rate of return Yes No Depends on the Debt ratio

Explanation / Answer

If a new sales associate is hired, then:

Incremental (marginal) revenue = $1,000

Incremental (marginal) cost = $1,500

Incremental (marginal) loss = Incremental cost - Incremental revenue = $(1,500 - 1,000) = $500

Since hiring the new associate will result in an incremental loss, the new sales associate should not be hired.

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