Question

How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,500 and monthly sales increase by $17,500? (Round any unit calculations up to the nearest whole unit.)

Answer 1

A. $1,675

B. No

Step-by-step explanation:

a. Calculation for increase or decrease in net operating income

Increase in monthly sales $17,500

× Contribution margin ratio 39%

Increase in Contribution margin $6,825

(17,500×39%)

Less: Advertising costs $8,500

Net Operating income decreases by $1,675

($6,825- $8,500)

b. Based on the above Calculation the advertising should NOT be increased.