Question

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

Per Unit Percent of Sales
Selling price $ 150 100 %
Variable expenses 90 60 %
Contribution margin $ 60 40 %

The company is currently selling 7,100 units per month. Fixed expenses are $199,000 per month. The marketing manager believes that a $6,700 increase in the monthly advertising budget would result in a 110 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 monthly Net Operating Income would reduce by $100 if additional funds are allocated to Marketing Expenses.

Step-by-step explanation:

I have attached a screen shot of my workings, give it a look and you will have a better idea of what is going on.

Key Points:

• New units to be sold are 7,210.
• Variable Expense is calculate as (Sales * Percentage of Variable Expense).
• A new Fixed cost of 6,700 for Marketing will be deducted.

I hope I made it very much clear for you. Feel free to ask if you have any confusion.

Thanks!