Question

distributes a product that sells for $8 per unit. Variable expenses are $4 per unit, and fixed expenses total $20000 annually. Assume that the company sold 21600 units last year. The president wants to increase the sales commission by $0.6 per unit. She thinks that this move, combined with some increase in advertising, would double annual unit sales. Q: By how much could advertising be increased with profits remaining unchanged

Answer 1

$60,480

Step-by-step explanation:

The computation of advertising be increased with profits remaining unchanged is shown below:-

Particulars Current Proposed

Units 21,600 43,200

Sales $172,800 $345,600

($8 × 21,600) ($16 × 21,600)

Less: Variable expenses $86,400 $172,800

(21,600 × $4) (43,200 × $4)

Sales commission - $25,920

Less: Fixed expenses $20,000 $20,000

Net income $66,400 $126,880

So, the difference is $126,880 - $66,400

= $60,480