Larita Corporation produces and sells a single product. Data concerning that pro
ID: 2340156 • Letter: L
Question
Larita Corporation produces and sells a single product. Data concerning that product appear below:
Fixed expenses are $345,000 per month. The company is currently selling 4,000 units per month.
The marketing manager believes that a $19,000 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales.
Required:
What should be the overall effect on the company's monthly net operating income of this change? (Negative amount should be indicated by a minus sign.)
Change in Net Operating Income:
Per Unit Percent of Sales Selling price $ 160 100 % Variable expenses 40 25 % Contribution margin $ 120 75 %
Explanation / Answer
Current NOPAT = (4000 * 120 ) - $ 345000
= $135000
Revised NOPAT = (4140*120) - (345000+19000)
= 496800 - 364000
= $132800
Net operating profit reduced by = - $2200
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