What-If Analysis

Mike's Motorcycles has enjoyed several years of business success, but recently the company has seen some indications of a slowdown in sales. The company's owner has decided to increase the advertising budget by 10% and reduce sales prices by 4%. The following partial income statement shows the company's results for the most recent quarter:

Partial Income Statement

Sales $800,000

Less: VC 560,000

CM: 240,000

Less: FC 175,000

=Net Operating $65,000

Assuming that the original advertising budget was $30,000 for the quarter and was included in the fixed costs, calculate Mike's Motorcycles' new net income or loss if the changes are made. You should assume that the variable costs will not change if Mike implements the preceding changes.

Net operating Income = $?