Question

Assume the company is considering a reduction in the selling price by $10 per unit and an increase in advertising budget by $5,000. This will increase sales volume by 50%. What is the net operating income after the changes?

Answer 1

Step-by-step explanation:

New selling price = $110 - $10

= $100

New sales level = 1,000 units x 150%

= 1,500 units

Net operating income = 1,500 units × Selling price of $100 per unit - 1,500 units × variable expense of $60 per unit - $30,000 + $5,000

= $25,000

Therefore, the net operating income after the changes is $25,000.