Wertman Corporation produces and sells a single product with the following characteristics: The company is currently selling 3,000 units per month. Fixed expenses are $215,000 per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $19 and increase the advertising budget by $14,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change?

Question

Wertman Corporation produces and sells a single product with the following characteristics:  The company is currently selling 3,000 units per month. Fixed expenses are $215,000 per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Wertman Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $19 and increase the advertising budget by $14,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change?

Quizplus · Accepted Answer

The decrease in selling price and increase in advertising costs would lead to a decrease in net operating income. The increase in sales volume may not be sufficient to offset these costs, resulting in a decrease of $6,000.

Wertman Corporation Produces and Sells a Single Product with the Following