Question

Ret Selling price Variable expenses Contribution margin Per Unit $ 95 57 $ 38 Percent of Sales 1000 60 40% Fixed expenses are $79,000 per month and the company is selling 3,600 units per month. Exercise 6-5 Part 1 Required: 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,400 and monthly sales increase by $17,100? 1-b. Should the advertising budget be increased? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,400 and monthly sales increase by $17,100? (Round any unit calculations up to the nearest whole unit.) Net operating decreases by s income 1,800

Answer 1

Working Notes:
	CALCULATION OF NORMAL OPERATING INCOME
	PARTICULARS	AMOUNT
	Sales (3600 Units X $ 95)	$               3,42,000
	Less: Variable Cost (60%)	$               2,05,200
	Contribution Margin	$               1,36,800
	Less: Fixed Cost	$                   79,000
	Operating Income	$                   57,800
Soltuion: 1 (A)
	CALCULATION OF OPERATING INCOME AFTER ADVERTISING BUDGET
	Sales ($ 342,000 + $ 17,100)	$               3,59,100
	Less: Variable Cost (60%)	$               2,15,460
	Contribution Margin	$               1,43,640
	Less: Fixed Cost ($ 79,000 + $ 8,400)	$                   87,400
	Operating Income	$                   56,240
	Difference in operating income ($ 57,800 - $ 56,240) =	$                     1,560
	Answer =
	Net Operating income =	Decreases by $ 1,560
Soltuion: 1 (B)
	Advertisig Budget should not be increases because the net operating
	income is decreased by $ 1,560