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9 September, 15:06

Data concerning Lemelin Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 230 100 % Variable expenses 115 50 % Contribution margin $ 115 50 % The company is currently selling 7,000 units per month. Fixed expenses are $581,000 per month. The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $37,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,600 units. What should be the overall effect on the company's monthly net operating income of this change

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  1. 9 September, 15:30
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    Overall Net Income=-$7,800

    Overall Net income decreases by $7,800

    Explanation:

    Current New (After changes)

    Units Selling 7,000 7,000+1,600=8600

    Sales (7000*$230) Drop of $18, so S. P=$212

    =$1,610,000 (8,600*212) = $1,823,200

    Variable Exp (7000*$115) = $805,000 (8,600*115) = $989,000

    (AT $115)

    Contribution $1,610,000 - $805,000 $1,823,200-$989,000

    Margin = $805,000 = $834,200

    Fixed Expense $581,000 ($581,000+$37,000)

    =$618,000

    Net Operating $805,000-$581,000 $834,200-$618,000

    Income = $224,000 = $216,200

    Overall Net Income=New Income-Current Income

    Overall Net Income=$216,200-$224,000

    Overall Net Income=-$7,800

    Overall Net income decreases by $7,800
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