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4 June, 09:37

Turtle Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 60 40 % Contribution margin $ 90 60 % The company is currently selling 7,000 units per month. Fixed expenses are $209,000 per month. The marketing manager believes that a $7,100 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

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  1. 4 June, 10:21
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    Operating income variance = $10,000

    The increase in advertising will have a positive effect on operating income.

    Explanation:

    Giving the following information:

    Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 60 40 % Contribution margin $ 90 60 % The company is currently selling 7,000 units per month. Fixed expenses are $209,000 per month. The marketing manager believes that a $7,100 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales.

    Price = $150

    Contribution margin = $90

    Operating income variance = (contribution margin * units) - increase in costs

    Operating income variance = (190*90) - 7100 = $10,000

    The increase in advertising will have a positive effect on operating income.
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