Question

Cobble Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $499,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $33,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 900 units. What should be the overall effect on the company's monthly net operating income of this change? Select one: a. increase of $56,100 b. decrease of $8,900 c. increase of $99,300 d. decrease of $56,100

Answer 1

Answer:

b. decrease of $8,900

Explanation:

the sales price and variable costs are missing, so I looked them up:

sales price = $160

variable costs = $48

current operating income:

sales revenue $800,000

variable costs ($240,000)

contribution margin $560,000

fixed costs ($499,000)

operating income $61,000

if the company follows the marketing manager's plan:

sales revenue $867,300

variable costs ($283,200)

contribution margin $584,100

fixed costs ($532,000)

operating income $52,100

operating income will decrease by $61,000 - $52,100 = $8,900