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Prince Paper has budgeted the following amounts for its next fiscal year: Total fixed expenses $500,000 Selling price per unit $75 Variable expenses per unit $25 If Price Paper spends an additional $12,500 on advertising, sales volume should increase by 2,300 units. What effect will this have on operating income?

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Zviko

Answer:

Increase in Operating Income of $102,500.

Explanation:

Consider the incremental effects as follows

Sales (2,300 × $75)                              $172,500

Less Variable Costs ( 2,300 × $25)    ($57,500)

Contribution                                          $115,000

Less Fixed Costs                                  ($12,500)

Change in Operating Income             $102,500

Therefore,

The effect is an Increase in Operating Income of $102,500.

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