P&Q Manufacturing produces a single product that sells for $16. Variable (flexible) costs per unit equal $11.20. The company expects the total fixed (capacity-related) costs to be $7,200 for the next month at the projected sales level of 20,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

Suppose that P&Q Manufacturing's management believes that a $1,600 increase in the monthly advertising expense will result in a considerable increase in sales.

a)How much must sales increase in a month to justify this additional expenditure?

334 units

200 units

500 units

None of the above is correct.

b)If this proposed reduction in selling price is implemented, then:

profit will decrease by $12,800 in a month.

profit will increase by $12,800 in a month.

profit will increase by $32,000 in a month.

profit will decrease by $32,000 in a month.