Question

Tony Manufacturing produces a single product that sells for $ 110. Variable costs per unit equal $ 30. The company expects total fixed costs to be $ 84 comma 000 for the next month at the projected sales level of 2 comma 700 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 $ 80 comma 000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by​ ________ to justify this additional​ expenditure? A. 1 comma 047 units B. 728 units C. 1 comma 050 units D. 1 comma 000 units

Answer 1

Increase in units= 1,000 units

Step-by-step explanation:

First, we need to calculate the current income:

Net income= total contribution margin - fixed costs

Net income= 2,700*(110 - 30) - 84,000

Net income= $132,000

Now, we the company should gain at least the same income to justify the increase in marketing expenses:

Increase in fixed costs= $80,000

Increase in units= increase in fixed cost / unitary contribution margin

Increase in units= 80,000 / 80

Increase in units= 1,000 units

Net income= 3,700*80 - 164,000

Net income= $132,000