Question

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

Per Unit Percent of Sales
Selling price $220 100%
Variable expenses 66 30%
Contribution margin $154 70%

Fixed expenses are $362,000 per month. The company is currently selling 5,700 units per month.

Required:
The marketing manager believes that a $19,000 increase in the monthly advertising budget would result in a 130 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Answer 1

The change in the net operating income will be "$1,020".

Step-by-step explanation:

According to the question, the values will be:

Sales,

• After: 1282600
• Before: 1254000

Variable expenses,

• After: 384780
• Before: 376200

Contribution margin,

• After: 897820
• Before: 877800

Fixed expenses:

• After: 381000
• Before: 362000

The net income will be:

• Before: $516,820
• After: $515,800

hence,

The change in the net operating income will be:

=
`After \ net \ operating \ income - Before \ net \ operating \ income`

=
`516820- 515800`

=
`1,020` ($)