Tom Petty Co. produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price…………………………………. $260 100.00% Variable Expenses……………………….. $ 94 36.15% Contribution margin……………………. $166 63.85% Fixed expenses are $620,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $20 and increase the advertising budget by $60,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change? Should Tom Petty Co implement the marketing manager’s proposal? Show your work.
Tom Petty Co. produces and sells a single product. Data concerning that product appear below:
Per Unit Percent of Sales
Selling price…………………………………. $260 100.00%
Variable Expenses……………………….. $ 94 36.15%
Contribution margin……………………. $166 63.85%
Fixed expenses are $620,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $20 and increase the advertising budget by $60,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change? Should Tom Petty Co implement the marketing manager’s proposal?
Show your work.
Income Statement :— It is one of the financial statement that shows profitability of company during the period.
Net Operating Income :— It is the difference between contribution margin and fixed cost.
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