Broken Arrow Inc. 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 } & \$ 190 & 100 \% \
\text { Variable costs } & 57 & 30 \% \
\text { Contribution margin } & \$ 133 & 70 \% \

\end{array}$$
Fixed costs are $226,000 per month. The company is currently selling 2,000 units per month.
Required:
The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $13,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 200 units. What should be the overall effect on the company's monthly operating profit of these changes?

Question

Broken Arrow Inc. 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 } & \$ 190 & 100 \% \
\text { Variable costs } & 57 & 30 \% \
\text { Contribution margin } & \$ 133 & 70 \% \

\end{array}$$ 
Fixed costs are $226,000 per month. The company is currently selling 2,000 units per month.
Required:
The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $13,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 200 units. What should be the overall effect on the company's monthly operating profit of these changes?

Quizplus · Accepted Answer

The Answer of Broken Arrow Inc. 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 } & \$ 190 & 100 \% \
\text { Variable costs } & 57 & 30 \% \
\text { Contribution margin } & \$ 133 & 70 \% \

\end{array}$$ 
Fixed costs are $226,000 per month. The company is currently selling 2,000 units per month.
Required:
The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $13,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 200 units. What should be the overall effect on the company's monthly operating profit of these changes?

Broken Arrow Inc Fixed Costs Are $226,000 Per Month