The company is currently selling 8,000 units per month. Fixed expenses are $719,000 per month. The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 180 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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Business

Nora Goodwin

20 July, 11:17

The company is currently selling 8,000 units per month. Fixed expenses are $719,000 per month. The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 180 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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Twig · Answer 1

The following data is missing in the question which is being reproduced;

Selling price $140

Variable Cost $28

Contribution Margin $112

Explanation:

Increase in sale 180*140 $25,200

Variable Cost 180*28 ($5,040)

Net contribution margin $20,160

Advertising expense-incremental ($20,000)

Net Increase in operating income $160

The net operating income will increase with just $160 because of this change.