Data for Whiteworth Ltd. are shown below: Sales price Less: Variable expenses Contribution margin Per Unit Percentage of Sales $80 100 50 62.5 $30 37.5 Fixed expenses are $25,000 per month, and the company is selling 2,000 units per month. Required: 1. The marketing manager argues that a $4,000 increase in the monthly advertising budget would increase monthly sales by $8,000. Should the advertising budget be increased? 2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2.00 per unit. The marketing manager believes the higher- quality product would increase sales by 10% per month. Should the higher-quality components be used?

Data for Whiteworth Ltd. are shown below: Sales price Less: Variable expenses Contribution margin Per Unit Percentage of Sales $80 100 50 62.5 $30 37.5 Fixed expenses are $25,000 per month, and the company is selling 2,000 units per month. Required: 1. The marketing manager argues that a $4,000 increase in the monthly advertising budget would increase monthly sales by $8,000. Should the advertising budget be increased? 2. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by $2.00 per unit. The marketing manager believes the higher- quality product would increase sales by 10% per month. Should the higher-quality components be used?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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4
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