Answer:
Income will increase in $2,160
Explanation:
Giving the following information:
The marketing manager believes that a $7,200 increase in the monthly advertising budget would result in a 120 unit increase in monthly sales.
First, we need to determine the actual net operating income:
Sales= 130*6,500= 845,000
Variable cost= 52*6,500= (338,000)
Contribution margin= 507,000
Fixed costs= (209,000)
Net operating income= $298,000
Now, we can calculate the effect on income:
Contribution margin= (6,500 + 120)*78= 516,360
Fixed costs= (209,000 + 7,200)= (216,200)
Net operating income= 300,160
Income will increase in (300,160 - 298,000)= $2,160
Answer:
$2,160 increase
Explanation:
For 6,500 units:
Contribution margin = (6,500 × 130) - (6,500 × 52) = $507,000
Net operating income = Contribution - Fixed expenses = $507,000 - $209,000 = $298,000
For 6,620 units:
Note that 6,620 units is obtained by adding the 120 unit increase to the current 6,500 units.
Contribution margin = (6,620 × 130) - (6,620 × 52) = $522,600
Net operating income = $522,600 - ($209,000 + $7,200) = $300,160
Change in profit:
Change in profit = $300,160 - $298,000 = $2,160 increase.
Conclusion:
The overall effect on the company's monthly net operating income of this change should be $2,160 increase.
