Thornbrough Corporation produces and sells a single product with the following c

Question

Thornbrough Corporation produces and sells a single product with the following characteristics: Per Unit Percent of Sales Selling price $ 220 100 % Variable expenses 44 20 % Contribution margin $ 176 80 % The company is currently selling 7,000 units per month. Fixed expenses are $901,000 per month. The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $53,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change? Multiple Choice decrease of $105,000 increase of $149,000 increase of $105,000 decrease of $21,000

Explanation / Answer

Effect on net operating income :

Effect = 310000-331000 = -21000

So answer is d) Decrease of $21000

Present Proposed Sales 7000*220 = 1540000 8000*202 = 1616000 Variable cost 7000*44 = 308000 8000*44 = 352000 Contribution margin 1232000 1264000 Fixed cost 901000 954000 Net operating income 331000 310000

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