4. Data concerning Abbott Corporation\'s single product appear below: Percent of

Question

4. Data concerning Abbott Corporation's single product appear below: Percent of Sales Per Unit S 110 Selling price Variable expenses Contribution margin 100 % 40 % 60 S 66 Fived expenses are $440,000 per month. The company is currently selling 8,000 units per month. Required The marketing manager believes that an $8,000 increase in the monthly advertising budget would result in a 150 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Explanation / Answer

1900

As a result contribution will change by= 150units*66= 9900

Profit will change by= 9900-8000= 1900

Before change After change Change A Sales units 8000 8150 150 B Selling price 110 110 0 C Variable cost per unit 44 44 0 D=B-C Contribution per unit 66 66 0 E=A*D Total contribution 528000 537900 9900 F Fixed costs 444000 452000 8000 G=E-F Profit 84000 85900

1900

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