Question

urtle Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 75 50 % Contribution margin $ 75 50 % The company is currently selling 6,500 units per month. Fixed expenses are $206,000 per month. The marketing manager believes that a $6,300 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Answer 1

Net increase in operating income = $1,200

Step-by-step explanation:

Contribution margin per unit = $150 - $75 = $75 per unit

if marketing expenses increase by $6,300, the total number of units sold will incerase by 100 units. Differential increase in contribution margin = $75 x 100 = $7,500. Differential increase in fixed expenses = $6,300. Net increase in operating income = $7,500 - $6,300 = $1,200