How much will a company's net operating income change if it undertakes an advertising campaign given the following data:

A) $200 increase
B) $25,200 increase
C) $15,000 increase
D) $9,800 increase

Question

How much will a company's net operating income change if it undertakes an advertising campaign given the following data:

A) $200 increase 
B) $25,200 increase 
C) $15,000 increase 
D) $9,800 increase

Quizplus · Accepted Answer

CM ratio = 1 - Variable expense ratio = 1 - 0.42 = 0.58
Increase in net operating income = CM ratio × Increase in sales - Increase in fixed expenses
= (0.58 × $60,000) - $25,000 = $34,800 - $25,000 = $9,800

How Much Will a Company's Net Operating Income Change If