Question

Problem 2 Data concerning Neuner Corporation's single product appear below: Selling price Variable expenses Contribution margin Per Unit Percent of Sales S220 100% 88 40% $132 60% Fixed expenses are $425,000 per month. The company is currently selling 4,000 units per month Required: The marketing manager would like to cut the selling price by $11 and increase the advertising budget by $23,700 per month. The marketing manager predicts that these two changes would increase monthly sales by 400 units. What should be the overall effect on the company's monthly net operating income of this change? How would you be able to justify cutting the selling price of this item with the CEO? If you cannot justify cutting the selling price what would you do differently? Show all work and explain!

Answer 1

Afdesr elange Cusorent 220-1) = 209 8. selling price (s) vasiable expenses (v) $ २२० $ 88 121 .. condrisudion P.U(S-v)e) I32 Fixed EXpenses (F) $ 4,25,000 (4.25,00+ 23,700) 4,48700 selling unit (u) 1st We calculate profit In two cases i 4,000 4400 units Tedal selling psüce) (SxU) E) voriab Je costiv) = (VXU) 9,19,60 0 8,80,000 (8, 87, 200) (3,52,000) contribution (e) -) Füxed Experses (F)= 5,28,000 5,32400 4,48,700) (4,25,000) Net operading Porofit (e) 103, 000 If company chages its selling Poùce, Fixed expewes ard jnerese selling unit, the net effect in opeting profist, Net Profit will be neduced by $(1,03,500- 83.700) = a $ 19,700. Therefoge comprny showuld nod change 83,700 thesre cost shaueture. If we not imerease the Advertisement ExpeLses by $ 23700 then We by a O $ 4,400, So we ty do not 'saeLOJIed At increased Adverdisement ex. ore profictable from befare