Question

uzio Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 130 100 % Variable expenses 78 60 % Contribution margin $ 52 40 % The company is currently selling 6,000 units per month. Fixed expenses are $263,000 per month. The marketing manager believes that a $5,000 increase in the monthly advertising budget would result in a 140 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:

Result : Incremental profit of $2,280

Explanation:

Consider the incremental costs and revenues resulting from the $5,000 increase in the monthly advertising budget.

Analysis of incremental costs and revenue

Sales (140×$ 130)                                  18,200

Less Variable expenses (140×$ 78)   (10,920)

Contribution                                            7,280

Less Fixed Costs

Advertising                                            (5,000)

Net Operating Income / (Loss)              2,280

Result : Incremental profit of $2,280