A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising, and is able to sell 50 additional units per month, by how much will net operating income change?

Question

Business

Kylan Lane

16 October, 17:58

A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising, and is able to sell 50 additional units per month, by how much will net operating income change?

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Answers (1)

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Issac Mccarthy · Answer 1

Effect on income = $5,000

Explanation:

Giving the following information:

A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising and is able to sell 50 additional units per month.

Effect on income = contribution margin * increase in units - advertising

Effect on income = (800 - 500) * 50 - 10,000 = $5,000