Prince Paper has budgeted the following amounts for its next fiscal year: Total fixed expenses $ 900 comma 000 Selling price per unit $ 85 Variable expenses per unit $ 35 If Price Paper spends an additional $ 12 comma 100 on advertising, sales volume should increase by 3 comma 000 units. What effect will this have on operating income?

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Business

15 June, 17:35

Prince Paper has budgeted the following amounts for its next fiscal year: Total fixed expenses $ 900 comma 000 Selling price per unit $ 85 Variable expenses per unit $ 35 If Price Paper spends an additional $ 12 comma 100 on advertising, sales volume should increase by 3 comma 000 units. What effect will this have on operating income?

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Preston Dalton · Answer 1

The effect on net operating income would be an increase of $137,900

Explanation:

Giving the following information:

Selling price $85

Variable expenses per unit $ 35

If Price Paper spends an additional $12,100 on advertising, sales volume should increase by 3,000 units.

To calculate the effect on income, we need to determine the incremental total contribution, and deduct the incremental fixed costs:

Effect on income = 3,000 * (85 - 35) - 12,100 = $137,900