Homework Answers
1a) Effect on net operating income = (17500*39%)-8500 = -1675
Net operating income decrease by -1675
1b) No, Advertising budget should not be increased
2a) Present operating income = 3700*39 = 144300
Proposed operating income = (3700*1.15)*36 = $153180
Total Contribution margin increase by (153180-144300) = 8880
2b) Yes, Higher quality components should be used
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