Answer:
Increase in income= $5,000
Explanation:
Giving the following information:
Selling price $ 110,000 ($110)
Variable expenses 60,000 ($60)
Contribution margin 50,000 ($50)
Fixed expenses 30,000
Net operating income $ 20,000
The company is considering a reduction in the selling price by $10 per unit and an increase in the advertising budget by $5,000. This will increase sales volume by 50%.
Increase in income= unitary contribution margin* sales in units - new fixed costs
New Income= 40* (1000*1.5) - 35,000= 25,000
Increase in income= $5,000
