com 7. Staley Co manufactures computer monitors. The following is a summary of i
ID: 2431455 • Letter: C
Question
com 7. Staley Co manufactures computer monitors. The following is a summary of its basic revenue data Per Unit Percent 100 85 $480 312 $168 Sales price Variable costs contribution margin Assume that Staley Co. is currently selling 600 computer monitors per month and monthly fixed costs are $80,000. If an $18,000 increase in the advertising budget would increase monthly sales by $60,000, the new level of operating income (Tma) for Staley Co. would be: A $19,800. B. $21,800. ? $24,800. D. $23,800 E. $20,800Explanation / Answer
Basic Details:
Per unit
Percent
Sales Price
$ 480
100
Variable costs
$ 312
65
Unit Contribution Margin
$ 168
35
Net operating income at current level ( ie. 600 units)
Per unit($ )
Total ($)
Percent
Sales
480
288,000
100
Less: Variable costs
312
187,200
65
Contribution Margin
168
100,800
35
Less: Fixed Costs
80,000
Operating Income/(loss)
20,800
Increase in advertisement budget= $18,000
Increase in monthly sales = $ 60,000
Assuming advertisement expenditure is a fixed cost item the revised profit will be computed as follows.
Revised Sales = $ 288,000+ $ 60,000 = $ 348,000
No.of units = $ 348,000/ $ 480 = 725 units.
Revised fixed cost = $ 80000+ $ 18000= $ 98000
Net operating income at revised level ( ie. 725 units)
Per unit($ )
Total ($)
Percent
Sales
480
348,000
100
Less: Variable costs
312
226,200
65
Contribution Margin
168
121,800
35
Less: Fixed Costs
98,000
Operating Income/(loss)
23,800
Therefore, the correct answer = Option D
Per unit
Percent
Sales Price
$ 480
100
Variable costs
$ 312
65
Unit Contribution Margin
$ 168
35
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