Evans Roofing Company has estimated the following amounts for its next fiscal ye

Question

Evans Roofing Company has estimated the following amounts for its next fiscal year: Total fixed expenses $832,500 Sale price per unit 40 Variable expenses per unit 25 If the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units. What effect will this decision have on the operating income of Evans? A) Operating income will increase by $37,500. B) Operating income will increase by $7,500. C) Operating income will increase by $70,000 D) Operating income will decrease by $62,500.

Explanation / Answer

Ans

B) Operating income will increase by $7,500.

Details Amount Sales Price per Unit 40 VC per Unit 25 Contribution 15 Increase in units 2500 Contribution                     37,500.00 Additional Advertisement exp                     30,000.00 Increase in operating income                       7,500.00

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