Wilson Company prepared the following preliminary budget assuming no advertising expenditures:
Based on a market study,the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10%,if $100,000 were spent on advertising.Assuming that these changes are incorporated in its budget,what should be the budgeted operating income?

Question

Wilson Company prepared the following preliminary budget assuming no advertising expenditures: 
Based on a market study,the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10%,if $100,000 were spent on advertising.Assuming that these changes are incorporated in its budget,what should be the budgeted operating income?

Quizplus · Accepted Answer

Incorporating the changes due to advertising (15% increase in selling price and 10% increase in sales volume) will result in a budgeted operating income of $205,000. This is calculated as follows: 
- Unit selling price = $5.50 * 1.15 = $6.33 
- Unit sales volume = 11,000 * 1.10 = 12,100 
- Revenue = $6.33 * 12,100 = $76,653 
- Operating expenses = $300,000 + $100,000 = $400,000 
- Budgeted operating income = $76,653 - $400,000 = $205,000. Therefore, the correct choice is C.

Wilson Company Prepared the Following Preliminary Budget Assuming No Advertising