he president believes that a $6,700 increase in the monthly advertising budget,

Question

he president believes that a $6,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $85,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

Please suppy an explination. I have worked this mutilple times and I get 20,800.

Thank you

  Sales (12,900 units × $20 per unit) $ 258,000      Variable expenses 129,000      Contribution margin 129,000      Fixed expenses 144,000      Net operating loss $ (15,000) T

he president believes that a $6,700 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $85,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

Please suppy an explination. I have worked this mutilple times and I get 20,800.

Thank you

Explanation / Answer

Incremental sales

85000

Incremental variable expenses

42500

Incremental advertising expense

6700

Contribution margin

35800

Net operating income

35800

*fixed cost remains constant, hence ignored

incremental variable cost = 85000 * (129000/258000) = 42500

Incremental advertising expense = 6700 - 0

Incremental sales

85000

Incremental variable expenses

42500

Incremental advertising expense

6700

Contribution margin

35800

Net operating income

35800

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