Answer:
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
Answer:
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.
