Question

Turtle Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 60 40 % Contribution margin $ 90 60 % The company is currently selling 7,000 units per month. Fixed expenses are $209,000 per month. The marketing manager believes that a $7,100 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Answer 1

Answer:

Operating income variance= $10,000

The increase in advertising will have a positive effect on operating income.

Explanation:

Giving the following information:

Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 60 40 % Contribution margin $ 90 60 % The company is currently selling 7,000 units per month. Fixed expenses are $209,000 per month. The marketing manager believes that a $7,100 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales.

Price= $150

Contribution margin= $90

Operating income variance= (contribution margin* units) - increase in costs

Operating income variance= (190*90)- 7100= $10,000

The increase in advertising will have a positive effect on operating income.