Question

Tony Manufacturing produces a single product that sells for $80. Variable costs per unit equal $45. The company expects total fixed costs to be $80,000 for the next month at the projected sales level of 2500 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.Suppose management believes that a $90,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by ________ to justify this additional expenditure?

2572 units
1125 units
2260 units
2286 units

Answer 1

The sales must grow in 1125 units

Consider:

Price: $80

Variable costs: $45

Total fixed costs: $80.000

Sales level: 2500

Marketing expense: $90.000

Total revenue $200.000

(-)Variable costs $ 112.500

(-)Total fixed costs $ 80.000

______________________________

Profit $ 7.500

Marketing expense: $90.000 /$80 price=1125 units