Feather Friends, Inc. distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $160,000 per year. It's operating results for the last year were as follows:

Sales $2,000,000

Variable Expense 1,000,000

Contribution Margin 1,000,000

Fixed Expenses 160,000

Net Operating income 840,000

The sales manager is convinced that a 11% reduction in the selling price, combined with a $78,000 increase in advertising would increase this year's sales by 25%. If the manager is right, what would be this year's operating income if his ideas are implemented? If implemented, how much will the net operating income increase or decrease over last year?

The president doesn't want to change the selling price. Instead he wants to increase the sales commission by $2.00 per unit. He thinks that this move, combined with some increase in advertising would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $840,000, net operating income as last year?