Contribution margin per unit = $42
Contribution margin ratio = Contribution margin per unit/ Selling price per unit
= 42/120
= 35%
Increase in Advertising expense = $8,900
Increase in sales = $18,000
Change in net operating income = Increase in sales x Contribution margin ratio - Increase in Advertising expense
= 18,000 x 35%- 8,900
= 6,300-8,900
= -$2,600
Net operating will decrease by $2,600
(b)
Advertising budget should not be increased since it will decrease net operating income.
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Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume (L06-4) [The following information...
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