Selling price Variable expenses Contribution margin Per Unit $ 65 39 S 26 Percen

Question

Selling price Variable expenses Contribution margin Per Unit $ 65 39 S 26 Percent of Sales 100% 60 40% Fixed expenses are $73,000 per month and the company is selling 4,300 units per month. Required 1-a. The marketing manager argues that a $9,700 increase in the monthly advertising budget would increase monthly sales by $23,500. Calculate the increase or decrease in net operating income 1-b. Should the advertising budget be increased? Complete this question by entering your answers in the tabs below Req 1A Req 1B The marketing manager argues that a $9,700 increase in the monthly advertising budget would increase monthly sales by $23,500. Calculate the increase or decrease in net operating income. (Do not round intermediate calculations.) t operating income by Req 1A Req 1B >

Explanation / Answer

1-a)Calculation of operating income: Particulars Amount($) Sales (4300*65) 279500 Less: Variable cost(4300*39) 167700 Contribution(279500-167700) 111800 Less:Fixed Cost 73000 Operating income (111800-73000) 38800 New operating income: Particulars Amount($) Sales (279500+23500) 303000 Less: Variable cost(303000*0.6) 181800 Contribution(303000-181800) 121200 Less:Fixed Cost (73000+9700) 82700 Operating income (121200-82700) 38500 Decrease in operating income= 38800-38500= $300 1-b) No advertising budget should not be increased because it will reduce the net operating income.

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