Thonbrough Corporation produces and sells a single product with the following ch

ID: 2411645 • Letter: T

Question

Thonbrough Corporation produces and sells a single product with the following characteristics Percent of Per Unit $220 Selling price Variable expenses Contribution margin Sales 100% 20% 80% $176 The company is currently selling 7.000 units per month. Fixed expenses are $901000 per month The marketing manager would like to cut the selling price by S18 and increase the advertising budget by $53,000 per month The marketing manager predicts that these two changes would increase monthly sales by 1,000 units What should be the overall effect on the company's monthly net operating income of this change?

Explanation / Answer

Before Change

7000 units

After Change

8000 units

Effect

Sale

(7000 * 220)

=1540000

(8000 * 202)

=1616000

76000

Variable cost

(7000 * 44)

=308000

(8000 * 44)

=352000

(44000)

Contribution

1232000

1264000

32000

Fixed cost

901000

(901000 + 53000)

=954000

(53000)

Operating Income

331000

310000

(21000)

Operating Income decrease by 21000