Data concerning Damberger Corporation\'s single product appear below: The compan

Question

Data concerning Damberger Corporation's single product appear below:


The company is currently selling 5,000 units per month. Fixed expenses are $243,000 per month. The marketing manager believes that an $11,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Per Unit Percent of sales
selling prices $150 100%
variable exp 90 60%
cont margin 60 40%

a. increase of $200 b. decrease of $200 c. increase of $10,800 d. decrease of $11,000

Explanation / Answer

Additions would be 180*150*.40= 10,800 Since this is less than the 11,000 to be spent on advertising it would reduce net income by 200.

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