Data concerning Neuner Corporation's single product appear below: Per UnitPercent of SalesSelling price$220 100%Variable expenses 88 40%Contribution margin$132 60%Fixed expenses are $425,000 per month. The company is currently selling 4,000 units per month.Required:The marketing manager would like to cut the selling price by $11 and increase the advertising budget by $23,700 per month. The marketing manager predicts that these two changes would increase monthly sales by 400 units. What should be the overall effect on the company's monthly net operating income of this change?
What will be an ideal response?
| New selling price ($220 per unit - $11 per unit) | $ | 209 | |
| New contribution margin ($209 per unit - $88 per unit) | $ | 121 | |
| New unit monthly sales (4,000 units + 400 units) | 4,400 | ||
| New total contribution margin: 4,400 units × $121 per unit | $ | 532,400 | |
| Present total contribution margin: 4,000 units × $132 per unit | 528,000 | ||
| Change in total contribution margin | 4,400 | ||
| Less increase in advertising budget | 23,700 | ||
| Change in net operating income | $ | (19,300 | ) |
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