Data concenning Lemelin Corporation\'s single product appear below Peroent of Ba
ID: 2508634 • Letter: D
Question
Data concenning Lemelin Corporation's single product appear below Peroent of Bales 100 Fer Uait Belling price 230 risble expS 509 Contribution margia 115 The company is carrently selling 7,000 units per month. Fixed expenses are $581,000 per ont The marketing manager would like to out the selling price by $18 and increase the advertising budget by $37,000 per month. The marketing manager predicts Puad these two changes would increase monthily sales tby 1,800 units. What should be the overal eflect on the companys monthly net operating income of this change? Muiple Choke $380,200 decrease ef $7,800Explanation / Answer
Current contribution margin = Current sales * Contribution margin per uit
= 7,000 units * 115 per unit
= 805,000
Current operating income = Current contribution margin - Fixed costs
= 805,000 - 581,000
= 224,000
New sales in units = 7,000 + 1,600 = 8,600 units
New selling price per unit = 230 -18 = 212
Variable expenses per unit = 115
Fixed costs = 581,000 + 37,000 = 618,000
Operating income = Sales - Variable costs - Fixed costs
= (8,600 * 212) - (8,600*115) - 618,000
= 216,200
Change in operating income = 224,000 - 216,200
= 7,800 decrease
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