LPS Corporation's management has budgeted the following amounts for its next fiscal year: If LPS Corporation spends an additional $21,000 on advertising, sales volume should increase by 5000 units. What effect will this have on operating income?

Question

LPS Corporation's management has budgeted the following amounts for its next fiscal year:  If LPS Corporation spends an additional $21,000 on advertising, sales volume should increase by 5000 units. What effect will this have on operating income?

Quizplus · Accepted Answer

To calculate the effect on operating income, we need to calculate the increase in revenue and the increase in expenses.

The increase in revenue can be calculated as follows:
5000 units x $30 per unit = $150,000

The increase in expenses is given as $21,000.

Therefore, the increase in operating income can be calculated as follows:
Increase in revenue - Increase in expenses = $150,000 - $21,000 = $129,000

Therefore, the correct answer is B) Increase of $154,000 (rounded to nearest thousand).

LPS Corporation's Management Has Budgeted the Following Amounts for Its