Question

distributes a product that sells for $8 per unit. Variable expenses are $4 per unit, and fixed expenses total $20000 annually. Assume that the company sold 21600 units last year. The president wants to increase the sales commission by $0.6 per unit. She thinks that this move, combined with some increase in advertising, would double annual unit sales. Q: By how much could advertising be increased with profits remaining unchanged

Answer 1

Answer:

$60,480

Explanation:

The computation of advertising be increased with profits remaining unchanged is shown below:-

Particulars                               Current                 Proposed

Units                                         21,600                     43,200

Sales                                       $172,800                $345,600

                                            ($8 × 21,600)           ($16 × 21,600)

Less: Variable expenses        $86,400                $172,800

                                             (21,600 × $4)         (43,200 × $4)

Sales commission                     -                            $25,920

Less: Fixed expenses         $20,000                      $20,000

Net income                           $66,400                  $126,880

So, the difference is $126,880 - $66,400

= $60,480