Question

Fixed expenses are $358,000 per month. The company is currently selling 5,300 units per month. The marketing manager believes that a $15,000 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

Change in net operating income = $4,950

Explanation:

Missing Detail;

Contribution margin = $105 per unit

Current selling unit = 5,300

Increase in monthly sale = 190 unit

Advertisement cost = $15,000

Find:

Change in net operating income

Computation:

Change in net operating income = [Contribution margin x Increase in monthly sale] - Advertisement cost

Change in net operating income = [105 x 190] - 15,000

Change in net operating income = [19,950] - 15,000

Change in net operating income = $4,950