A company's manager estimates that in the upcoming year,decreasing advertising costs by $35 000 will cause sales revenue to decrease by $80 000.If the company's contribution margin ratio is 40%,what will be overall effect on net income?

Question

Quizplus · Accepted Answer

The decrease in sales revenue by $80,000 will reduce the contribution margin by 40% of $80,000, which is $32,000. However, the company saves $35,000 in advertising costs. Thus, the net effect on net income is an increase of $35,000 - $32,000 = $3,000.

A Company's Manager Estimates That in the Upcoming Year,decreasing Advertising