Question

shelhorse Corporation produces and sells a single product. Data concerning that product appear below:Per UnitPercent of Sales Selling price$240100% Variable expenses6025% Contribution margin$18075% Fixed expenses are $364,000 per month. The company is currently selling 5,900 units per month. Required: The marketing manager believes that a $21,000 increase in the monthly advertising budget would result in a 130 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change

Answer 1

Answer:

Effect on income= $2,400 increase

Explanation:

Giving the following information:

Selling price= $240

Variable expenses= $60

Contribution margin= $180

Fixed expenses= $364,000 per month.

The company is currently selling 5,900 units per month.

The marketing manager believes that a $21,000 increase in the monthly advertising budget would result in a 130 unit increase in monthly sales.

First, we need to calculate the actual income:

Actual income= 5,900*180 - 364,000= $698,000

Now, the income with changes:

Income= 6,030*180 - 385,000= $700,400

Effect on income= $2,400 increase