Kuzio Corporation produces and sells a single product. Data concerning that prod

Question

Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Percent of Per Unit Sales Selling price Variable expenses Contribution margin 100% 608 40% $130 78 52 The company is currently selling 6,000 units per month. Fixed expenses are $184,000 per month. The marketing manager believes that a $5,800 increase in the monthly advertising budget would result in a 200 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Explanation / Answer

Hence increase in net operating income=(132600-128000)

=$4600

Current Proposed Sales (130*6000)=780,000 (130*(6000+200))=$806000 VC (78*6000)=$468000 (78*(6000+200)=$483600 Contribution margin $312000 $322400 Fixed expenses $184000 (184000+5800)=$189800 Net operating income $128000 $132600.

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