Question

Harding Company expected sales to be 50,000 units in February, 45,000 in March, and 55,000 units in April. Each unit sells for $18.00 each. The following costs pertain to each unit:PictureHarding is considering an advertising campaign which will cost $15,000 per month from January to March and is expected to increase sales by 8% a month. At the same time Harding will reduce sales prices to $17.00 per unit while keeping costs steady.Required:
(A.) What will operating income be in each of the three months before the advertising campaign?(B.) If Harding goes ahead with the advertising campaign,

Answer 1

Answer:

(A) Before the advertising campaign

February: $900,000

March: $810,000

April: $990,000

(B) If Harding goes ahead with the advertising campaign

February: $903,000

March: $811,200

April: $994,800

Explanation:

(A) Before the advertising campaign

Sales price for each unit is $18

February: 50,000 units = 50,000 × $18 = $900,000

March: 45,000 units = 45,000 × $18 = $810,000

April: 55,000 units = 55,000 × $18 = $990,000

(B) If Hard goes ahead with the advertising campaign

Sales increase = 7%, sales price for each unit = $17, advertising cost = $15,000

February: 50,000 + (50,000 × 0.08) = 50,000+4,000= 54,000units = (54,000×$17) - $15,000 = $918,000 - $15,000 = $903,000

March: 45,000 + (45,000 × 0.08) = 45,000+3600= 48,600units = (48,600×$17) - $15,000 = $826,200 - $15,000 = $811,200

April: 55,000 + (55,000×0.08) = 55,000 + 4,400 = 59,400units = (59,400×$17) - $15000 = $1,009,800 - $15,000 = $994,800