Titanic roofing company has estimated the following amounts for its next fiscal year: total fixed expenses $832,500 sale price per unit 40 variable expenses per unit 25 if the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units. what effect will this decision have on the operating income of evans?

a) operating income will increase by $37,500.
b) operating income will increase by $7,500.
c) operating income will increase by $70,000
d) operating income will decrease by $62,500.

The correct answer is B.

Explanation:

Giving the following information:

Total fixed expenses $832,500

Sale price per unit 40

Variable expenses per unit 25

If the company spends an additional $30,000 on advertising, sales volume would increase by 2,500 units.

Effect on income= 2,500*(40 - 25) - 30,000= $7,500

B) Operating income will increase by $7,500

Explanation:

First we calculate contribution per unit which would be as follows:

Sale price per unit - Variable price per unit = Contribution price unit

40 - 25 = $15 per unit

Then we multiple it by the additional increase in units of 2,500.

15 * 2,500 = $37,500

Finally, we subtract it with the cost incurred for additional spending.

37,500 - 30,000 = $7,500

Hence, the impact of the decision would mean the income has increased by $7,500 in comparison to the expenses incurred.