he company is currently selling 6,400 units per month. Fixed expenses are $424,400 per month. The marketing manager believes that a $6,600 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Question

Tabetha

Business

19 January, 21:47

he company is currently selling 6,400 units per month. Fixed expenses are $424,400 per month. The marketing manager believes that a $6,600 increase in the monthly advertising budget would result in a 140 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

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Answers (1)

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Alexus Myers · Answer 1

The company's net operating income would increase by 2.1875%.

Explanation:

Let the selling price for each unit be $y

Initial quantity sold per month before increase in the advertising budget = 6400 units

Initial income = $6400y

New monthly sales after increase in advertising budget = 6400 + 1400 = 6540 units

New income = $6540y

Increase in income = $6540y - $6400y = $140y

Percentage increase in income = (increase in income : initial income) * 100 = ($140y : $6400) * 100 = 0.021875 * 100 = 2.1875%