QUESTION 1 Synergy Company expects the following results for the next accounting

Question

QUESTION 1 Synergy Company expects the following results for the next accounting period Sales Variable costs Fixed costs Expected production and sales in units $250,000 150,000 50,000 3,500 units The sales manager believes that sales could be increased by 500 units if advertising expenditures were increased by $14,000. Which of the following is the effect on operating income if an increase in the advertising expenditures result in an increase in sales by 500 units? (Note: Round the sale price per unit and the variable cost per unit to two decimal places.) o a. Increase of $575 o b. Increase of $220 c. Increase of $280 O d. Increase of $450 e. Cannot be determined from the data given

Explanation / Answer

Unit contribution margin = (250000-150000)/3500= $ 28.57 Effect on operating income = (500*28.57)-14000 = $280 Option C increase of $280 is the correct option Note: Contribution margin has been rounded off to 2 decimal places

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