Question

Dybala Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 125 100 % Variable expenses 75 60 % Contribution margin 50 40 % The company is currently selling 5,320 units per month. Fixed expenses are $240,000 per month. The marketing manager believes that a $7,600 increase in the monthly advertising budget would result in a 330 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? rev: 08_18_2016_QC_CS-57562 increase of $8,900 decrease of $7,600 increase of $16,500 decrease of $8,900

Answer 1

• Increase of $8,900

Step-by-step explanation:

• It means that if the investment in advertising generate an increase of 330 units of sales it would have an increase in the income of the company of $8,900.

• Initial Situation

Dybala

5,320 Quantity

$ 125,0 Unit Price

$ 665,000 Total Net Sales

100% Percentage

-$ 75,0 Unit Variable Cost

-$ 399,000 TOTAL Variable Cost

60% Percentage

$ 50,0 Unit Cont Margin

$ 266,000 Contributing Margin

40% % Contribution

-$ 240,000 Anual Fixed Costs

$ 4,9 Unit Segment Margin

$ 26,000 Segment Margin

4% % Contribution

• New Situation with the incremental sales.

Dybala

5.650 Quantity

$ 125,0 Unit Price

$ 706.250 Total Net Sales

100% Percentage

-$ 75,0 Unit Variable Cost

-$ 423.750 TOTAL Variable Cost

60% Percentage

$ 50,0 Unit Cont Margin

$ 282.500 Contributing Margin

40% % Contribution

-$ 247.600 Anual Fixed Costs

$ 6,2 Unit Segment Margin

$ 34.900 Segment Margin

5% % Contribution