Question

Data concerning Kardas Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 140 100% Variable expenses 28 20% Contribution margin $ 112 80% 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

Answer 1

If the marketing increase by $20,000; the net income will increase by $160.

Step-by-step explanation:

First, we need to calculate the current net income:

Net income= total contribution margin - fixed costs

Net income= 8,000*112 - 719,000

Net income= $177,000

Now, the net income with the changes incorporated:

New net income= 8,180*112 - (719,000 + 20,000)

New net income= $177,160

If the marketing increase by $20,000; the net income will increase by $160.