[The following information applies to the questions displayed below.] 1-a. The m

Question

[The following information applies to the questions displayed below.]

1-a. The marketing manager argues that a $9,200 increase in the monthly advertising budget would increase monthly sales by $21,000. Calculate the increase or decrease in net operating income.

2-a.

Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 20% per month. Calculate the change in total contribution margin.

[The following information applies to the questions displayed below.]

Explanation / Answer

Increased net operating Income = 21000 x 40% - 9200

= (800)

1-b Adbertising budhet should not be increased as it results in decrease in operating income

2 Contribution margin = 2900 x 120% x (135 - 86) = 170520

Change in contribution margin = 170520 - 2900 x 54 = 13920

2-b Yes, higher quality component should be used

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