Question

Group Work Form Question 2) Data concerning Neuner Corporation's sing ECUACATOS 04 Data concerning Neuner Corporation's single product appear bele Selling price Variable expenses Contribution margin Per Unit $ 220 88 S 132 Percent of Sales 100 % 40 % 60 % ed expenses/ penses 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? (2 marks)

Answer 1

Statement showing Increase (Decrease) in Company's Monthly Net Operating Income

		Current		Expected
	Particulars	Per Unit	Total	Per Unit	Total
A	Sales Volume		4,000		4,400
B	Selling Price (Per Unit x A)	220.00	880,000	209.00	836,000
C	Variable Expenses (40% of A)	88.00	352,000	83.60	334,400
D	Contribution Margin (D) = (B) - (C)	132.00	528,000	125.40	501,600
E	Normal Fixed Expenses		425,000		425,000
F	Advertising Budget		-		23,700
G	Total Fixed Expenses (G) = ( E ) + (F)		425,000		448,700
H	Profit Net Monthly Operating Income		103,000		52,900

Conclusion: With reduction of $11 per unit and increase in advertising budget, sales are reduced by $44,000 and thus company's monthly net operation income is down by $50,100.