Question

Bethard Corporation produces and sells a single product. Data concerning that product appear below: Selling price...

Bethard Corporation produces and sells a single product. Data concerning that product appear below:

  • Selling price $120 per unit
  • Variable expenses 24 per unit
  • Contribution margin $96 per unit

Fixed expenses are $354,000 per month. The company is currently selling 5,000 units per month.

Required:

The marketing manager would like to cut the selling price by $8 and increase the advertising budget by $23,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 600 units. What should be the overall effect on the company's monthly net operating income of this change?

Homework Answers

Answer #1
  • Workings

Current

Planned

Sales

$600,000

$627,200

Variable expenses

$120,000

$134,400

Contribution margin

$480,000

$492,800

Fixed expenses

$354,000

$377,000

Net Income

$126,000

$115,800

Current

Planned

Sales

=5000*120

=+(5000+600)*(120-8)

Variable expenses

=5000*24

=+(5000+600)*24

Contribution margin

=600000-120000

=627200-134400

Fixed expenses

354000

=354000+23000

Net Income

=480000-354000

=492800-377000

  • Requirement

>Overall effect on Company’s net operating income
= Decrease by $ (10,200)

[$115800 – 126000]

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