Question

Cream Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Selling Price $130 Variable Cost $ 78 Contribution Margin $ 52 The company is currently selling 6,000 units per month. Fixed expenses are $263,000 per month. The marketing manager believes that a $5,000 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change

Answer 1

$2,280 increase

Step-by-step explanation:

The computation of the change in net operating income is shown below:

= Increase in monthly sales unit × contribution margin per unit - increased monthly advertising

= 140 units × $52 - $5,000

= $7,280 - $5,000

= $2,280

Since this comes in a positive figure that results in increased in monthly net operating income we simply considered the change in monthly sales unit, monthly advertising, and the contribution margin per unit