Data concerning Marchman Corporation's single product appear below: The company is currently selling 4,000 units per month. Fixed expenses are $166,000 per month. Consider each of the following questions independently. This question is to be considered independently of all other questions relating to Marchman Corporation. Refer to the original data when answering this question.
The marketing manager believes that a $6,000 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?
A)decrease of $240
B)decrease of $6,000
C)increase of $240
D)increase of $6,240

Question

Data concerning Marchman Corporation's single product appear below:  The company is currently selling 4,000 units per month. Fixed expenses are $166,000 per month. Consider each of the following questions independently. This question is to be considered independently of all other questions relating to Marchman Corporation. Refer to the original data when answering this question.
The marketing manager believes that a $6,000 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?
A)decrease of $240 
B)decrease of $6,000 
C)increase of $240 
D)increase of $6,240

Quizplus · Accepted Answer

Contribution margin per unit = $68 - $28 - $10 = $30

Contribution margin ratio = ($30/$68) x 100 = 44.12%

130 unit increase in monthly sales = 4,130 units sold

Increase in sales revenue = 4,130 units x $68 = $280,240

Increase in variable expenses = 4,130 units x $38 = $156,740

Total increase in monthly expenses = $6,000 + $156,740 = $162,740

New monthly net operating income = $280,240 - $162,740 - $166,000 = -$48,500

Overall effect on monthly net operating income = Decrease of $240 ($48,260 - $48,500)

Data Concerning Marchman Corporation's Single Product Appear Below: the Company