This question is to be considered independently of all other questions relating to Laro Corporation. Refer to the original data when answering this question. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 110 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Question

Quizplus · Accepted Answer

The increase in sales would generate additional contribution margin, which is the selling price per unit minus variable cost per unit, multiplied by the increase in units sold. If this additional contribution margin exceeds the $7,000 increase in advertising costs, the net operating income will increase. The correct calculation shows an increase of $1,250 in net operating income.

This Question Is to Be Considered Independently of All Other