Question

The company is currently selling 6,700 units per month. Fixed expenses are $180,000 per month. The marketing manager believes that a $7,000 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

Answer:

$8,300

Explanation:

DYBALA CORPORATION'S CONTRIBUTION INCOME STATEMENT

Sales and variable

expenses per unit price ×( 6,700 units 6,870 units ) each

Sales (at $180 per unit)

$1,206,000 $1,236,600

Variable expenses (at $90 per unit)

$ 603,000 $ 618,300

Contribution margin

$603,000 $618,300

Fixed expenses ($7,000 increase)

$180,000 $187,000

Net operating income

$ 423,000 $431,300

Therefore the net operating income would increase by $8,300

$ 423,000 -$431,300= $8,300

Note:

sales - variable expenses = contribution margin

Contribution margin- Fixed expenses =Net income