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11 April, 00:11

A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising, and is able to sell 50 additional units per month, by how much will net operating income change?

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  1. 11 April, 00:20
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    Effect on income = $5,000

    Explanation:

    Giving the following information:

    A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising and is able to sell 50 additional units per month.

    Effect on income = contribution margin * increase in units - advertising

    Effect on income = (800 - 500) * 50 - 10,000 = $5,000
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