Data concerning Church Corporation's single product appear below: Selling price $200 100% Variable expenses 40 20 % Contribution margin $160 80 % Per Unit O decrease of $18,000 Percent of Sales Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Data concerning Church Corporation's single product appear below:
Selling price $200 100%
Variable
expenses
40 20 %
Contribution
margin $160 80 %
decrease of $18,000
Fixed expenses are $531,000 per month. The company is currently
selling 4,000 units per month. The marketing manager would like to cut
the selling price by $14 and increase the advertising budget by $35,000
per month. The marketing manager predicts that these two changes
would increase monthly sales by 500 units. What should be the overall
effect on the company's monthly net operating income of this change?
increase of $38,000
decrease of $38,000
Per Unit
O increase of $58,000
Percent of Sales
Transcribed Image Text:Data concerning Church Corporation's single product appear below: Selling price $200 100% Variable expenses 40 20 % Contribution margin $160 80 % decrease of $18,000 Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change? increase of $38,000 decrease of $38,000 Per Unit O increase of $58,000 Percent of Sales
Expert Solution
Step 1

Solution:

Current monthly operating income = Contribution margin  - Fixed expenses

= (4000*$160) - $531,000

= $640,000 - $531,000

= $109,000

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