The sales manager is convinced that a 11% reduction in the selling price, combined with a $65,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? (Do not round intermediate calculations.)

Question

Business

Kaylen Garner

21 October, 15:45

The sales manager is convinced that a 11% reduction in the selling price, combined with a $65,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? (Do not round intermediate calculations.)

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Tatiana Booth · Answer 1

net income increase of 11.25%

Explanation:

If the price p is reduced a 11% means that new price will be p (1-0.11)

New price = 0.89p

The new quantities demandes will increase a 25%, this means that the new quantities will be Q * (1+.025) = 1.25Q

So, the net income under this new circunstances will be

1.25 Q * 0.89P = 1.1125 P*Q

This means a net income increase of 11.25%