The company is currently selling 6,500 units per month. Fixed expenses are $184,000 per month. The marketing manager believes that a $7,800 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

$14,050

Explanation:

Calculation of what should be the overall effect on the company's monthly net operating income of this change

Contribution Income Statement

6,500 units 6,690 units

Sales (at $190 per unit)$1,235,000 $1,271,100

Variable expenses (at $75 per unit)

$487,500 $501,750

Contribution margin$747,500 $ 769,350

Fixed expenses ($7,800 increase)

$184,000 $191,800

Net operating income$563,500 $577,550

6,500 units+190 unit increase in monthly sales=6,690

Fixed expenses ($7,800 increase)

$184,000 +$7,800$= $191,800

Net operating income$563,500 -$577,550 =$14,050

Therefore Net operating income would increase by $14,050

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