Solution:
Requirement 1A:
Net Operating Income Decreased by $ 1,549.87
Particulars | Original | Revised |
Sales ( 4200 Units * 60 ) | $ 252,000.00 | $ 252,000.00 |
Increased Sales ( 383.33 Units * 60) | $ 23,000.00 | |
Less: | ||
Variable Expense ( 4200 Units * 39 ) | $ 163,800.00 | $ 163,800.00 |
Additional Units Variable Expense ( 383.33 Units * 39) | $ 14,949.87 | |
Contribution Margin | $ 88,200.00 | $ 96,250.13 |
Less: | ||
Fixed Expense | $ 72,000.00 | $ 72,000.00 |
Advertising Expense Increased | $ 9,600.00 | |
Net Operating Income / (loss) | $ 16,200.00 | $ 14,650.13 |
Requirement 1B:
The answer is No
Advertise Cost should not be increased. By increasing the advertising cost there is a decrease in net operating income.
Notes:
1) Additional Units = $23,000 / $60 ( Increase in sales / selling price per unit) = 383.33 Units
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