Answer the following questions using the information below:
Martha Manufacturing produces a single product that sells for $80. Variable costs per unit equal $32. The company expects total fixed costs to be $72,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
-Suppose management believes that a $16,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?
A)200 units
B)334 units
C)500 units
D)None of these answers are correct.

Question

Quizplus · Accepted Answer

Each unit currently generates a profit of $48 ($80 sale price - $32 variable costs). If management spends an additional $16,000 on advertising, they will need to sell an additional 334 units to justify this expense ($16,000 advertising cost / [$80 sale price - $32 variable cost per unit]). Therefore, choice B is correct.

Answer the Following Questions Using the Information Below