Shelhorse Corporation produces and sells a single product. Data concerning that product appear below: Per UnitPercent of SalesSelling price$140 100%Variable expenses 56 40%Contribution margin$84 60% Fixed expenses are $275,000 per month. The company is currently selling 4,000 units per month. Required:The marketing manager believes that a $13,000 increase in the monthly advertising budget would result in a 150 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
What will be an ideal response?
| Increase in total contribution margin ($84 per unit × 150 units) | $ | 12,600 | |
| Less incremental fixed expenses | 13,000 | ||
| Change in net operating income | $ | (400 | ) |
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