Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:

Sales $1,920,000

Variable expenses $960,000

Contribution margin $960,000

Fixed expenses $200,000

Net operating income $ 760,000

Required:

Answer each question independently based on the original data:

5. The sales manager is convinced that a 11% reduction in the selling price, combined with a $76,000 increase in advertising, would increase this year's unit sales by 25%.

a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented?

b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year?