If the company spends an additional $35,000 on advertising, sales volume would increase by 2500 units. Before the change, the company's sales level exceeds the breakeven point. What effect will this decision have on the operating income of Titanic?
Titanic Roofing Company has estimated the following amounts for its next fiscal year:
A) Operating income will decrease by $90,000.
B) Operating income will increase by $90,000.
C) Operating income will increase by $200,000.
D) Operating income will increase by $125,000.
B) Operating income will increase by $90,000.
Increase in total contribution margin = 2500 units × ($80 - $30) = 2500 units × $50 = $125,000
Increase in operating income = $125,000 - $35,000 (Advertising costs) = $90,000
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