The marketing manager argues that a $9,000 increase in the monthly advertising budget would increase monthly sales by $20,000. Calculate the increase or decrease in net operating income.

  Per Unit Percent
of Sales
  Selling price    $ 125 100%
  Variable expenses 80   64%
  Contribution margin    $ 45   36%

 

Fixed expenses are $85,000 per month and the company is selling 2,700 units per month.

4.
value:
10.00 points

Required information

Required:
1-a. The marketing manager argues that a $9,000 increase in the monthly advertising budget would increase monthly sales by $20,000. Calculate the increase or decrease in net operating income.

 

1-b. Should the advertising budget be increased?
Yes
No

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5.
value:
10.00 points

Required information

2-a. Refer to the original data. Management is considering using higher-quality components that would increase the variable expense by $5 per unit. The marketing manager believes that the higher-quality product would increase sales by 20% per month. Calculate the change in total contribution margin.

 

 

2-b. Should the higher-quality components be used?
Yes
No

 

 
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