Dybala Corporation produces and sells a single product. Data concerning that pro

Question

Dybala Corporation produces and sells a single product. Data concerning that product appear below:

The company is currently selling 5,600 units per month. Fixed expenses are $100,000 per month. The marketing manager believes that a $6,500 increase in the monthly advertising budget would result in a 350 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

rev: 08_18_2016_QC_CS-57562

increase of $1,550

decrease of $6,500

increase of $8,050

decrease of $1,550

Per Unit Percent of Sales Selling price $ 115 100 % Variable expenses 92 80 % Contribution margin 23 20 %

Explanation / Answer

Answer:- The company's monthly net opreating income will increase by $1550.

Explanation:-

Difference in net income =$30350-$28800 = $1550

Hence after increasing in advertising budget company net opreating income will increase from $28800 to $30350.

Dybala Corporation Statement of Net opreating income Particlulars Current situation Proposed situation $ $ Sales value 5600 units*$115 per unit =644000 5950 units*$115 per unit =684250 Less:- Variable costs 5600 units*$92 per unit =515200 5950 units*$92 per unit =547400 Contribution 128800 136850 Less:- Fixed costs 100000 100000+6500 = 106500 Net opreating income 28800 30350

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