Answer:
Overall effect of the change is an increase in net operating income of $1800
Explanation:
The net operating income with additional advertising spend is shown below:
Sales (6620*$150) $993,000
Variable expenses(60%*993000) ($595,800)
contribution margin $397,200.
Fixed expenses($193000+$5400) ($198,400)
Net operating income $198,800
The net operating income without additional advertising spend is shown below:
Sales (6500*$150) $975,000
Variable expenses(60%*975,000) ($585,000)
contribution margin $390,000
Fixed expenses ($193,000)
Net operating income $197,000
The overall effect of the change is an increase in net operating income of $1800($198800-$197000)
