Question

# Titanic Roofing Company has estimated the following amounts for its next fiscal​ year: Total fixed costs...

Titanic Roofing Company has estimated the following amounts for its next fiscal​ year:

 Total fixed costs \$900,000 Sale price per unit 40 Variable cost per unit 25

If the company spends an additional \$35,000 on​ advertising, sales volume would increase by 3,000  units. Before the​ change, the​ company's sales level exceeds the breakeven point. What effect will this decision have on the operating income of​ Titanic?

A. Operating income will increase by \$45,000

B. Operating income will increase by \$10,000

C. Operating income will increase by \$120,000

D. Operating income will decrease by \$10,000

#### Homework Answers

Answer #1

Lets suppose that company previously was just selling 1 quantity. thus after uncuring an Addtional expense of \$35,000 it will sell 3001 Quantity.

 Pariticular Current Situation Situation After Advertising Sales Price Per unit…..... (A) \$40 \$40 Variable Cost per unit…...... (B) \$25 \$25 Contribution Per unit …..... (C ) = (A)-(B) \$15 \$15 No. of Quantity Sold…....(D) 1 3001 Total Contribution….... (Z) = (C )*(D) \$15 \$45,015 Fixed Cost…... ( E) \$900,000 \$900,000 Additional Advertising Expense…... ( F) 0 \$35,000 Total Fixed Cost….... (U) = (E ) + (F) \$900,000 \$935,000 Net Income ..... ( Z) -(U) (\$899,985) (\$889,985)

Net Increase in Income = (\$889,985) - (\$899,985) = \$10,000

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