Question

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

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