Question

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 2,080,000 Variable expenses 1,040,000 Contribution margin 1,040,000 Fixed expenses 180,000 Net operating income $ 860,000

The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.90 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $860,000 net operating income as last year?

Answer 1

Answers Selling Price : seo Permaet VWciable Exp. : Fuo per unit finced Exp. +.180.100 last year data u Sales = $ 20,60.coo or 26000 uri Variable Exp. 2600D XS40 = 10,40,vo Net Income - $ 60,000 Calculation of increase in Advertising Exp. can be :- 0 In orase in sale commission = 1.90 Povo © Increase in sale - 25%. 3) Net operatins Income = $8,60,000 = 32500 unit Sale = 26000 uret + 25% sellinş : 32.500 uzet x60 salos : $ 20.00.000 Net operating Income : sale - variable cost - Fixed 4. &.GO,00u - 4.26.00 oud . Vc - 180.Oto alable Cost - $26.00,oro - Dl80,w210 - EGO, UUD ا و : U2 اما ) ملفه عن ۷

Vardable Cost fac. = Variable Prerious, cost t Increase in sale conmission + Increase Advertising Expenses $ 15,60,000 [s10 + 1.9] x 32500 unit + Advertising Expo $1560,000 - $13,61,750 + Advertising Expo $1560,000 - $13,61,750 Inc. Aelvertering Expu : Inc. Advertising Exp. : $1,98,250 Increase in Ad vo Exp. Peruzit = $198,280 ). 32500 => 461 - President of feather friends. Inco cauld Inveease this year's Advertising Expenses by 71.98,250 and still earn same 4.860,000 net operating income. Nate: new data available :- Selling Price : $ 80 Varjuble Exp. : 148 L Increase sale como Fiseed Exp. : 180,000 uset sold = 32.500 Pou. Advertising Exp. Per unit = 1601 Teeteel Advertising Exp. In breaved = $6-1X 32500 wit $19%, 250

Answer 2

The amount by which  advertising can be increased

198,250

Contribution margin   per unit (Last year)	40.00
Less: increase in sales comm	(1.90)
Prposed contribution margin	38.10
Multiplied by proposed sales after   increase	32,500
Proposed total contribution margin	1,238,250
Less: Fixed expenses	(180,000)
Less: Target Income	(860,000)
The amount by which   advertising can be increased	198,250