Drake Company's contribution format income statement for the most recent year appears below:
-The sales manager is convinced that a $60,000 expenditure on advertising will increase unit sales by 50% without any other increase in fixed expenses.If the sales manager is correct,the company's net operating income would increase by:

Question

Drake Company's contribution format income statement for the most recent year appears below: 
-The sales manager is convinced that a $60,000 expenditure on advertising will increase unit sales by 50% without any other increase in fixed expenses.If the sales manager is correct,the company's net operating income would increase by:

Quizplus · Accepted Answer

If the advertising increases sales by 50%, the increase in net operating income would be the additional contribution margin from the increased sales minus the $60,000 advertising cost. Assuming the contribution margin ratio remains constant, the increase in net operating income would be $104,000 (additional contribution margin) - $60,000 (advertising cost) = $44,000.

Drake Company's Contribution Format Income Statement for the Most Recent