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7 April, 03:23

The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000 If advertising of $15,000 is spent to increase sales volume by 2,000 units, operating income will increase by $.

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  1. 7 April, 03:37
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    Operating income will increase by $3000

    Explanation:

    Total Contribution = (30-21) * 10000 = 90000

    Operating income = 90000-60000 = 30000

    Increase in sales by 2000 units then,

    Total contribution = (30-21) * 12000 = 108000

    Operating income = 108000-60000-15000 = 33000

    Hence operating income will increase by 33000-30000 = $3000
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