Zeeb Corporation produces and sells a single product. Data concerning that produ

Question

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


Per Unit Percent
of Sales
Selling price $ 150 100%
Variable expenses 60 40%
Contribution margin $ 90 60%

Fixed expenses are $355,000 per month. The company is currently selling 5,000 units per month.

The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Please show work

Explanation / Answer

14,400 contribution to margin (150*160*.6);12,000 spending would increase profits by 2,400.

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