Question

he company is currently selling 6,400 units per month. Fixed expenses are $424,400 per month. The marketing manager believes that a $6,600 increase in the monthly advertising budget would result in a 140 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:

The company's net operating income would increase by 2.1875%.

Explanation:

Let the selling price for each unit be $y

Initial quantity sold per month before increase in the advertising budget = 6400 units

Initial income = $6400y

New monthly sales after increase in advertising budget = 6400 + 1400 = 6540 units

New income = $6540y

Increase in income = $6540y - $6400y = $140y

Percentage increase in income = (increase in income ÷ initial income) × 100 = ($140y ÷ $6400) × 100 = 0.021875 × 100 = 2.1875%