7. This question is to be considered independently of all other questions relati

Question

7. This question is to be considered independently of all other questions relating to Robledo Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $6 and increase the advertising budget by $46,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change?
A. Increase of $13,200
B. Increase of $29,200
C. Decrease of $13,200
D. Decrease of $40,800

Explanation / Answer

answer is D. Decrease of $40,800

company 's current profit
Profit = Sales - Total cost
company 's current units sale =9,000
Profit = 100*9,000 -( 20*9,000 +625,000)
Profit = 900,000 -180,000 -625,000
Profit = $ 720,000 -$625,000
Profit = $95,000

new marketing policy profit
new units sale = 9,000+800 =9,800 Units
selling price =100-6 =$94 per unit
fixed cost =625,000+46,000 =$ 671,000
Profit =Sales -Total cost
= 94*9,800 -( 9,800*20 +671,000)
= $ 921,200 -$ 196,000-$ 671,000
= $ 54,200

profit will decrease 95,000 - 54,200 = 40,800

hence D. Decrease of $40,800

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