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dimaraw [331]
2 years ago
15

Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like

to cut the selling price by $14 and increase the advertising budget by $35,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What
Business
1 answer:
algol [13]2 years ago
3 0

The overall effect on the company's monthly net operating income of this change is <u>A. decrease of $18,000</u>.

<h3>What is break-even analysis?</h3>

The break-even analysis is an accounting tool to determine the point at which cost and income are equal and there is neither profit nor loss.

Using the break-even technique, companies can evaluate production and sales decisions to arrive at optimal decisions.

<h3>Data and Calculations:</h3>

Fixed costs per month = $531,000

Sales units per month = 4,000 units

Reduction in selling price = $14

New selling price = $186 ($200 - $14)

New fixed costs = $566,000 ($531,000 + $35,000)

News Sales units per month = 4,500 units (4,000 + 500)

New Contribution margin per unit = $146 ($186 - $40)

New Contribution margin ratio = 78.5% ($146/$186 x 100)

<h3>Determination of Change in Net Operating Income:</h3>

                                             Old          New              Difference

Total Contribution        $640,000     $657,000          $17,000

                              ($160 x 4,000)  ($146 x 4,500)

Fixed costs                      531,000       566,000       -$35,000

Net operating income $109,000         $91,000       -$18,000

<h3>Question Completion with Answer Options:</h3>

Data concerning Pellegren Corporation's single product appear below:

                                       Per Unit     Percent of Sales

Selling price                   $200                 100%

Variable expenses               40                   20%

Contribution margin        $160                   80%

What should be the overall effect on the company's monthly net operating income of this change?

A. decrease of $18,000

B. increase of $38,000

C. decrease of $38,000

D. increase of $58,000

Thus, the overall effect on the company's monthly net operating income of this change is <u>A. decrease of $18,000</u>.

Learn more about break-even analysis at brainly.com/question/21137380

#SPJ12

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