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A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising, and is able to sell 50 additional units per month, by how much will net operating income change?

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Answer:

Effect on income= $5,000

Explanation:

Giving the following information:

A company sells a product for $800 per unit. The variable expenses are $500 per unit, and fixed expenses total $40,000 per month. If the company spends $10,000 more each month for advertising and is able to sell 50 additional units per month.

Effect on income= contribution margin* increase in units - advertising

Effect on income= (800 - 500)*50 - 10,000= $5,000

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