Answer:
a. Net income is decreased by $1,600.
b. Advertising budget should not increased because it is no making enough benefit to increase or stabilize the net income. Net effect of this change is a loss of $1,600.
Explanation:
Current Operating income = ( 3,600 x $95 x 40% ) - $79,000 = $136800 - $79,000 = $57,800
After Increment
Sales = ( 3,600 x $95 ) + $17,000 = $359,000
Contribution margin = $359000 x 40% = $143,600
Fixed Cost = $79,000 + $8,400 = $87,400
Net Income = $143,600 - $87,600 = $56,200
Net income Change = $56,200 - $57,800 = -$1,600
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