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22 November, 09:16

Titanic Roofing Company has estimated the following amounts for its next fiscal year: Total fixed expenses $832,500 Sale price per unit 40 Variable expenses per unit 25 If the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units. What effect will this decision have on the operating income of Evans?

A) Operating income will increase by $37,500.

B) Operating income will increase by $7,500.

C) Operating income will increase by $70,000

D) Operating income will decrease by $62,500.

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Answers (2)
  1. 22 November, 09:37
    0
    B) Operating income will increase by $7,500

    Explanation:

    First we calculate contribution per unit which would be as follows:

    Sale price per unit - Variable price per unit = Contribution price unit

    40 - 25 = $15 per unit

    Then we multiple it by the additional increase in units of 2,500.

    15 * 2,500 = $37,500

    Finally, we subtract it with the cost incurred for additional spending.

    37,500 - 30,000 = $7,500

    Hence, the impact of the decision would mean the income has increased by $7,500 in comparison to the expenses incurred.
  2. 22 November, 09:45
    0
    The correct answer is B.

    Explanation:

    Giving the following information:

    Total fixed expenses $832,500

    Sale price per unit 40

    Variable expenses per unit 25

    If the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units.

    Effect on income = 2,500 * (40 - 25) - 30,000 = $7,500
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