Question
Refer to the original data (below). The president feels that it would be unwise to change the selling price. Instead, she wants to increase the
Refer to the original data (below). The president feels that it would be unwise to change the selling price. Instead, she wants to increase the sales commission by $2 per unit. She thinks that this move, combined with some increase in advertising, would increase sales to 40,000 units compared to 20,000 last year. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach. Original Data: Stratford Company distributes a lightweight lawn chair that sells for $40 per unit. Variable expenses are $18 per unit, and fixed expenses total $220,000 annually. Results for last year are as follows: Sales (20,000 units)$800,000
Variable expenses 360,000
Contribution margin 440,000
Fixed expenses 220,000
Operating income$220,000
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