Thornbrough Corporation produces and sells a single product with the following characteristics: The company is currently selling 7,000 units per month. Fixed expenses are $901,000 per month. The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $53,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change

$21,000

Explanation:

Calculation for What should be the overall effect on the company's monthly net operating income of this change

7,000 units 8,000 units

Sales $1,540,000 $1,616,000

(7,000 units × $220) (8,000 units × $202)

(7,000 units+1,000 units=8,000 units)

Variable expenses 308,000 352,000

(7,000 units × $44) (8,000 units× $44)

Contribution margin 1,232,000 1,264,000

($1,540,000-308,000) ($1,616,000-352,000)

Fixed expenses 901,000 954,000

(901,000+52,000=954,000)

Net operating income $331,000$310,000

Therefore the Decrease in net operating income will be :

Decrease in net operating income=$331,000 − $310,000

Decrease in net operating income = $21,000

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