Question

Yarim corporation produces and sells 6500 units per month of a single product for a price of $170 per unit variable costs are $24 per unit and monthly fixed costs are $120 per unit.
Per Unit Percent of Sales
Selling price $180 100%
Variable expenses 54 30%
Contribution margin $126 70%
The company is currently selling 5,500 units per month. Fixed expenses are $383,300 per month. The marketing manager believes that a $6,500 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
A. Decrease of $6,500.
B. Increase of $4,700.
C. Increase of $11,200.
D. Decrease of $4,700.

Answer 1

Answer:

Effect on income= $11,140 increase

Explanation:

Giving the following information:

Contribution margin $126

The marketing manager believes that a $6,500 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales.

To calculate the effect on income, we need to use the following formula:

Effect on income= total contribution margin increase - fixed costs increase

Effect on income= 140*126 - 6,500

Effect on income= $11,140 increase