Due to erratic sales of its sole product- a disposable pocket camera – Markline

Question

Due to erratic sales of its sole product- a disposable pocket camera – Markline Compnay has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below.

Sales (30,000 units X $20.00 per unit)……………….. $600,000
Variable expenses (12.00)……………………………. (360,000)
Contribution margin…………………………………… 240,000
Fixed expenses………………………………………… 250,000
Net operating loss……………………………………… $(10,000)

The president believes that a $20,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $90,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss?

(Can someone please help me with this and explain if you can in a step by step manner what the answer is and how I go about getting the answer, each step and everything, thank you very much.)

Explanation / Answer

Answer: +$16,000 to net income The contribution margin ratio is 240,000/600,000 = 40% (Meaning 40% of your sales is profit, less fixed expenses) So a $90,000 increase in sales leads to a $36,000 increase in profit. $36,000 profit - $20,000 advertising budget = $16,000 net income change

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.