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.)

Question

Business

Highbeam

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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Jamarcus · Answer 1

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