Answer:
See explanation section.
Explanation:
Requirement 1
At first we have to find the original net income.
Shelhorse Corporation
Contribution format income statement
For the year ended, December 31, 20YY
Sales Revenue (6,100 × $260) = $1,586,000
Less: Variable expense (6,100 × $91) = $555,100
Contribution Margin = $1,030,900
Less: Fixed Expense $366,000
Net Operating Income = $664,900
Requirement 2
As the marketing manager believes that a $23,000 increase in the monthly advertising budget would result in a 150 unit increase in monthly sales, the new sales volume = 6,100 + 150 = 6,250 and new fixed expense = $366,000 + $23,000 = $389,000
Shelhorse Corporation
Contribution format income statement
For the year ended, December 31, 20YY
Sales Revenue (6,250 × $260) = $1,625,000
Less: Variable expense (6,250 × $91) = $568,750
Contribution Margin = $1,056,250
Less: Fixed Expense = $389,000
Net Operating Income = $667,250
The effect on the company's monthly net operating income of this change = $667,250 - $664,900 = $2,350
