Mike’s Motorcycles has enjoyed several years of business success, but recently the company has seen some indications of a slowdown in sales. The company’s owner has decided to increase the advertising budget by 10% and reduce sales prices by 4%. The following partial income statement shows the company’s results for the most recent quarter: Mike's Motorcycles Partial Income statement Sales $800,000 Less: Variable costs 560,000 Contribution margin 240,000 Less: Fixed costs 175,000 Net operating income $65,000 Required: Assuming that the advertising budget was $30,000 for the quarter and was included in fixed costs, calculate Mike’s Motorcycles’ new net income or loss if the changes are made. You should assume that the variable costs will not change if Mike implements the preceding changes.
Mike’s Motorcycles has enjoyed several years of business success, but recently the company has seen some indications of a slowdown in sales. The company’s owner has decided to increase the advertising budget by 10% and reduce sales prices by 4%. The following partial income statement shows the company’s results for the most recent quarter: Mike's Motorcycles Partial Income statement Sales $800,000 Less: Variable costs 560,000 Contribution margin 240,000 Less: Fixed costs 175,000 Net operating income $65,000 Required: Assuming that the advertising budget was $30,000 for the quarter and was included in fixed costs, calculate Mike’s Motorcycles’ new net income or loss if the changes are made. You should assume that the variable costs will not change if Mike implements the preceding changes.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Mike’s Motorcycles has enjoyed several years of business success, but recently the company has seen some indications of a slowdown in sales. The company’s owner has decided to increase the advertising budget by 10% and reduce sales prices by 4%. The following partial income statement shows the company’s results for the most recent quarter:
Mike's Motorcycles Partial Income statement
Sales $800,000
Less: Variable costs 560,000
Contribution margin 240,000
Less: Fixed costs 175,000
Net operating income $65,000
Required: Assuming that the advertising budget was $30,000 for the quarter and was included in fixed costs, calculate Mike’s Motorcycles’ new net income or loss if the changes are made. You should assume that the variable costs will not change if Mike implements the preceding changes.
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