Question

Titanic Roofing Company has estimated the following amounts for its next fiscal​ year: Total fixed costs $ 840 comma 000 Sale price per unit 60 Variable cost per unit 30 If the company spends an additional $ 35 comma 000 on​ advertising, sales volume would increase by 2 comma 500 units. Before the​ change, the​ company's sales level exceeds the breakeven point. What effect will this decision have on the operating income of​ Titanic?

Answer 1

Answer:

Operating income increases by $40,000.

Explanation:

Given that,

Total fixed costs = $840,000

Sale price per unit = $60

Variable cost per unit = $30

Additional amount spend on advertising = $35,000

Sales volume would increase by 2,500 units.

Contribution margin:

= Sales - Variable costs

= $60 - $30

= $30 per unit

Increase in operating income:

= Increase in contribution margin - Increase in Fixed costs

= ($30 × 2,500 units) - $35,000

= $75,000 - $35,000

= $40,000