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Shelhorse Corporation produces and sells a single product. Data concerning that product appear below: Per Unit...

Shelhorse Corporation produces and sells a single product. Data concerning that product appear below:

Per Unit Percent of Sales
Selling price $ 230 100 %
Variable expenses 92 40 %
Contribution margin $ 138 60 %

Fixed expenses are $351,000 per month. The company is currently selling 4,600 units per month.

Required:

The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 200 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

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Homework Answers

Answer #1

Answer:

Company's net operating income increases by $7,600.

Explanation:

Increase in Contribution Margin = $27,600

( $138 per unit * 200 units)

Less: Incremental fixed expense = $(20,000)

( Advertisement expense)

Increase in Net Operating Income = $7,600

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