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25 March, 07:17

The sales manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? (Negative amounts should be input with a minus sign.)

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  1. 25 March, 09:13
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    Assumed Data

    Budgeted Sales 1000000

    units sold 10000

    Unit price 100

    Cost Per unit 60

    Before After Cahnge Due to

    impelemtation implementation implementation

    Sales 1000000 1125000 * 125000

    Cost - 600000 - 750000 - 150000

    Profit 400000 375000 - 25000

    Advertise Cost 0 - 30000 - 30000

    400000 345000 - 55000

    * Sales price 100

    Reduction 10%

    After Reduction Sp 90

    Current unit sales 10000

    Increase 25%

    After increase 12500

    Cost Per unit will remain the same because only sales price will be decreased to boost the sale

    New sales 12500*90 1125000

    Cost 12500*60 750000
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