Rudy Corporation produces and sells a single product. Data concerning that product appear below:
$$\begin{array} { l r c }
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 150 & 100 \% \
\text { Variable costs } & 60 & 40 \% \
\text { Contribution margin } & \$ 90 & 60 \% \
\end{array}$$
Fixed costs are $355,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160-unit increase in monthly sales. What should be the overall effect on the company's monthly operating profit of this change?

Question

Rudy Corporation produces and sells a single product. Data concerning that product appear below:
 $$\begin{array} { l r c } 
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 150 & 100 \% \
\text { Variable costs } & 60 & 40 \% \
\text { Contribution margin } & \$ 90 & 60 \% \
\end{array}$$ 
Fixed costs are $355,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160-unit increase in monthly sales. What should be the overall effect on the company's monthly operating profit of this change?

Quizplus · Accepted Answer

The Answer of Rudy Corporation produces and sells a single product. Data concerning that product appear below:
 $$\begin{array} { l r c } 
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 150 & 100 \% \
\text { Variable costs } & 60 & 40 \% \
\text { Contribution margin } & \$ 90 & 60 \% \
\end{array}$$ 
Fixed costs are $355,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160-unit increase in monthly sales. What should be the overall effect on the company's monthly operating profit of this change?

Rudy Corporation Produces and Sells a Single Product Fixed Costs Are $355,000 Per Month