Shelhorse Corporation produces and sells a single product. Data concerning that

Question

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

Fixed expenses are $362,000 per month. The company is currently selling 5,700 units per month.

Required:

The marketing manager believes that a $19,000 increase in the monthly advertising budget would result in a 130 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 price $ 220 100 % Variable expenses 66 30 % Contribution margin $ 154 70 %

Explanation / Answer

Differential analysis :

Net operating income increase by = (516820-515800) = 1020

Present Proposed Sales 1254000 1282600 Variable cost 376200 384780 Contribution margin 877800 897820 Fixed cost 362000 381000 Net income 515800 516820

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