Avalon, Inc.’s marketing manager believes that if they spend an additional $10,000 in Marketing, they will...
Avalon, Inc.’s marketing manager believes that if they spend an additional $10,000 in Marketing, they will sell 400 more units. The selling price is $200, variable cost per unit is $145, and total fixed costs are $30,000. If Avalon does this, what is the impact on operating income?
A. Increase of $12,000
B. Decrease of $12,000
C.Decrease of $40,000
D. Increase of $40,000
E. Need more information to answer the question.
Homework Answers
Selling price = $200
Variable cost = ($145)
Contribution Margin = $55
If marketing costs increased by $10,000, they could sell additional 400 units.
Additional Contribution Margin = 400 units * $55 = $22,000
Less: Additional costs = ($10,000)
Increase in operating income = $12,000
Operating Income increase by $12,000
Option 'B' is correct
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