Question

Percent of Selling price Variable expenses Contribution margin Per Unit $150 60 $ 90 Sales 1008 40% 60% The company is currently selling 5,200 units per month. Fixed expenses are $208,000 per month. The marketing manager believes that a $6,600 increase in the monthly advertising budget would result in a 150 unit increase in monthly sales. What should be the overall effect on the companys monthly net operating income of this change? Multiple Choice decrease of $6,900 decrease of $6,600 increase of $6,900 increase of $13,500

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Answer #1

Calculation of affect of increase in fixed cost by $6,600

Sale will increase by 150 units

Hence, increase in contribution margin = 150 x 90

= $13,500

Hence, increase in profits = Increase in contribution margin - Increase in fixed cost

= 13,500 - 6,600

= $6,900

Hence,correct option is (c)

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