Ringstaff Corporation produces and sells a single product. Data concerning that

Question

Ringstaff Corporation produces and sells a single product. Data concerning that product appear below:

Per Unit Percent of Sales
Selling price $147 100%
Variable expenses 44.1 30%
Contribution margin $102.9 70%

The company is currently selling 6,000 units per month. Fixed expenses are $601,000 per month. The marketing manager believes that a $29,670 increase in the monthly advertising budget would result in a 300 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
decrease or increase of what amount.


Please show explanation.

Explanation / Answer

Current net operating income =6,000*($147-44.1) -$601,000 =$16,400 New net operating income =6,300*($147-44.1)-$29,670-$601,000 =$17600 Increase in net income with change = $1,200

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