Question

Dybala corporation produces and sells a single product. data concerning that product appear below: the company is currently selling 5,000 units per month. fixed expenses are $173,000 per month. the marketing manager believes that an $6,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. what should be the overall effect on the company's monthly net operating income of this change

Answer 1

The given problem lacks the data about the price of the single product. However assuming that the selling price is similarly $44 which I got from other references, then we can now calculate for the net change of the monthly operating income.

 

So to solve for the change, we use the formula:

Change in net operating income = Increase in units * Selling price – Increase in advertising budget

Change in net operating income = 170* $44 – $6,000

Change in net operating income = $1,480

 

Since the change is positive, then it is a good decision to increase the monthly advertising budget by $6,000.