Homework SourseShelhorse Corporation produces and sells a single product Da
Shelhorse Corporation produces and sells a single product. Data concerning that product appear below:
Fixed expenses are $362,000 per month. The company is currently selling 5,700 units per month.
Required:
The marketing manager believes that a $19,000 increase in the monthly advertising budget would result in a 130 unit increase in monthly sales. What should be the overall effect on the company\'s monthly net operating income of this change?
| Per Unit | Percent of Sales | |||||
| Selling price | $ | 220 | 100 | % | ||
| Variable expenses | 66 | 30 | % | |||
| Contribution margin | $ | 154 | 70 | % | ||
Solution
Differential analysis :
Net operating income increase by = (516820-515800) = 1020
| Present | Proposed | |
| Sales | 1254000 | 1282600 |
| Variable cost | 376200 | 384780 |
| Contribution margin | 877800 | 897820 |
| Fixed cost | 362000 | 381000 |
| Net income | 515800 | 516820 |
