Question

Dybala Corporation's produces and sells a single product. Data concerning that product appear below The company is currently selling 6,700 units per month. Fixed expenses are $547,700 per month. The marketing manager believes that a $7,100 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: Increase of $8,200

Explanation:

Currently, the company is making a net operating income of;

= Contribution Margin - Fixed expenses

= (90 * 6,700) - 547,700

= $55,300

If the company advertises, net operating income becomes;

= Contribution margin with increase in sales - Fixed expenses including advertisements

= (90 * (6,700 + 170)) - (547,700 + 7,100)

= $63,500

Increase in operating income = 63,500 - 55,300

= $8,200