Question

Hobby Cat Toy Company has estimated the following amounts for its next fiscal year: If the company spends an additional $34,000 on advertising, sales volume would increase by 2,900 units. What effect will this decision have on the operating income?

Total fixed expenses $833,500

Sales price per unit 40

Variable expenses per unit 25

a) Operating income will decrease by $72,500 (B) Operaing income will increase by 9,500 (C) Operating income will increase by 116,000 (D) Operating income will increase by $43,500

Answer 1

The correct answer is B.

Step-by-step explanation:

Giving the following information:

If the company spends an additional $34,000 on advertising, sales volume would increase by 2,900 units.

Total fixed expenses $833,500

Sales price per unit 40

Variable expenses per unit 25

Effect in income= (40-25)*2,900 - 34,000= $9,500