Question
Harding Company expected sales to be 50,000 units in February, 45,000 in March, and 55,000 units in April. Each unit sells for $18.00 each. The
Harding Company expected sales to be 50,000 units in February, 45,000 in March, and 55,000 units in April. Each unit sells for $18.00 each. The following costs pertain to each unit:
Direct labor | $5.00 | |
Direct Materials | $3.00 | |
Variable overhead | $1.75 | |
Total fixed overhead | $45,000 | per month |
Harding is considering an advertising campaign that will cost $15,000 per month from January through March;it is expected to increase sales by 8% a month. At the same time Harding will reduce sales prices to $17.00 per unit while keeping costs steady.
Required: (A.) What will operating income be in each of the three months before the advertising campaign? (B.) If Harding goes ahead with the advertising campaign, how much would operating income increase or decrease each month? Would you advise them to go ahead with the campaign?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started