Question

Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Selling price Variable expenses Contribution margin Per Unit $ 150 75 $ 75 Percent of Sales 100% 50% 50% The company is currently selling 6,500 units per month. Fixed expenses are $206,000 per month The marketing manager believes that a $6,300 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? Multiple Choice increase of $1,200 )

Answer 1

Your required answer is option A i.e. Increase of $1,200

Explanation:

Sales Unit Sales Less: Variable Cost Contribution Less: Fixed cost Less: Advertising expense Net Operating Income Increase/(Decrease) in Operating Income Cost per unit 6500 6600 $150 $975,000 $990,000 $75 ($487,500) ($495,000) $487,500 $495,000 ($206,000) ($206,000) 0 ($6,300) $281,500 $282,700 $1,200

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