Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses...

5. The sales manager is convinced that a 10% reduction in the selling price, combined with a $79,000 increase in advertising, would increase this year's unit sales by 25%.

a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented?

b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year?

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.20 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $300,000 net operating income as last year?


Sales	$	1,000,000
Variable expenses		500,000
Contribution margin		500,000
Fixed expenses		200,000
Net operating income	$	300,000

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Expert Solution

ekkarill92 answered 2 years ago

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