Kuzio Corporation produces and sells a single product. Data concerning that product appear below:Per Unit Percent of SalesSelling price $ 130 100 %Variable expenses 52 40 %Contribution margin $ 78 60 %The company is currently selling 6,500 units per month. Fixed expenses are $209,000 per month. The marketing manager believes that a $7,200 increase in the monthly advertising budget would result in a 120 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Income will increase in $2,160

Explanation:

Giving the following information:

The marketing manager believes that a $7,200 increase in the monthly advertising budget would result in a 120 unit increase in monthly sales.

First, we need to determine the actual net operating income:

Sales = 130*6,500 = 845,000

Variable cost = 52*6,500 = (338,000)

Contribution margin = 507,000

Fixed costs = (209,000)

Net operating income = $298,000

Now, we can calculate the effect on income:

Contribution margin = (6,500 + 120) * 78 = 516,360

Fixed costs = (209,000 + 7,200) = (216,200)

Net operating income = 300,160

Income will increase in (300,160 - 298,000) = $2,160