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

By incorporating the increase in unit selling price and unit sales volume resulting from advertising expenditure, the budgeted operating income can be calculated as follows:

Budgeted Operating Income = (1.15 x 10,000 x $5.50) - $300,000 - $100,000 
= $63,250 
Adding this to the previous budgeted operating income of $141,750, we get 
Budgeted Operating Income = $205,000.

Therefore, the correct choice is C.

Wilson Company Prepared the Following Preliminary Budget Assuming No Advertising