Question
A company makes a product that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $200,000 per year. Its
A company makes a product that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:
Sales$2,880,000Variable expenses1,440,000Contribution margin1,440,000Fixed expenses200,000Net operating income$1,240,000
The company president wants to add new features to the product, which will increase the variable expensesby $1.60 per unit. She thinks that the new features, combined with some increase in marketing spending, would increase this year's sales by 25%. How much could the president increase this year's fixed marketing expense and still earn the same $1,240,000 net operating income as last year?
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