Data concerning Moscowitz Corporation\'s single product appear below: Selling pr

Question

Data concerning Moscowitz Corporation's single product appear below:                

Selling price                   $160(per unit)     100%(percent of sales)                 

Variable expenses           $96                     60%                 

Contribution margin        $64                     40%

Fixed expenses are $375,000 per month. The company is currently selling 8,000 units per month. The marketing manager would like                    to cut the selling price by $15 and increase the advertising budget by $23,000 per month. The marketing manager predicts that these two changes would increase                    monthly sales by 3,100 units. What should be the overall effect on the company's monthly net operating income of this change?                  

A. decrease of $128,900                

B. increase of $426,500                 

C. increase of $8,900                 

D. increase of $128,900

Explanation / Answer

Current profit = 8000*(160-96)-375000= $137000

New profit =( 8000+3100)*(160-15-96)-375000-23000 =145900

Difference = 145900-$137000 = $8900

C. increase of $8,900

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