Data concerning Wythe Corporation\'s single product appear below: Per Unit Perce

Question

Data concerning Wythe Corporation's single product appear below:

Per Unit Percent of Sales Selling price $150 100% Variable expenses 90 60% Contribution margin $60 40% Fixed expenses are $106,000 per month. The company is currently selling 2,000 units per month. The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $5,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change?

increase of $1,000

decrease of $31,000

increase of $103,000

increase of $31,000

Explanation / Answer

                                                                                Existing           Proposed

Sales     - units                                                          2000                2800

              - $ 150/unit    $300,000

              -$ 135/unit                                                                         $378,000

Variable cost -$90/unit    $180,000 $252,000

Contribution - $60/unit    $120,000 $126,000

Fixed cost $106,000 $111,000

Net operating income $ 14,000 $ 15,000               

Increase in net operating income by                      $1000.

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