Question

The Clyde Corporation's variable expenses are 25% of sales. Clyde Corporation is contemplating an advertising campaign that will cost $18,900. If sales increase by $78,900, the company's net operating income will increase by: (Do not round intermediate calculations.)

Answer 1

Answer:

Effect on income= $40,275 increase

Explanation:

Giving the following information:

The Clyde Corporation's variable expenses are 25% of sales.

Increase in fixed costs= $18,900

Increase on income= $78,900

To calculate the effect on income, we need to use the following formula:

Effect on income= increase in contribution margin -  increase in fixed costs

Effect on income= (78,900*0.75) - 18,900

Effect on income= $40,275 increase