Question

Kuzio Corporation produces and sells a single product. Data concerning that product appear below:

Per Unit Percent of Sales
Selling price $ 140 100 %
Variable expenses 84 60 %
Contribution margin $ 56 40 %
The company is currently selling 6,700 units per month. Fixed expenses are $180,000 per month. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
A) decrease of $2,520
B) increase of $2,520
C) decrease of $7,000
D) increase of $9,520

Answer 1

B) increase of $2,520

Step-by-step explanation:

Calculation for What should be the overall effect on the company's monthly net operating income of this change

Using this formula

Increase (Decrease) in net operating income= Additional contribution margin from increased sales - Advertising cost

Let plug in the formula

Increase (Decrease) in net operating income= (170*$56)- $7,000

Increase (Decrease) in net operating income= $9,520 - $7,000

Increase (Decrease) in net operating income= increase of $2,520

Therefore What should be the overall effect on the company's monthly net operating income of this change is increase of $2,520