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18 September, 05:49

shelhorse Corporation produces and sells a single product. Data concerning that product appear below:Per UnitPercent of Sales Selling price$240100% Variable expenses6025% Contribution margin$18075% Fixed expenses are $364,000 per month. The company is currently selling 5,900 units per month. Required: The marketing manager believes that a $21,000 increase in the monthly advertising budget would result in a 130 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change

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  1. 18 September, 09:07
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    Effect on income = $2,400 increase

    Explanation:

    Giving the following information:

    Selling price = $240

    Variable expenses = $60

    Contribution margin = $180

    Fixed expenses = $364,000 per month.

    The company is currently selling 5,900 units per month.

    The marketing manager believes that a $21,000 increase in the monthly advertising budget would result in a 130 unit increase in monthly sales.

    First, we need to calculate the actual income:

    Actual income = 5,900*180 - 364,000 = $698,000

    Now, the income with changes:

    Income = 6,030*180 - 385,000 = $700,400

    Effect on income = $2,400 increase
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