Rudy Corporation Produces and Sells a Single Product Fixed Costs Are $355,000 Per Month

question 142

Essay

Rudy Corporation produces and sells a single product. Data concerning that product appear below:
$$\begin{array} { l r c } & \text { Per Unit } & \text { Percent of Sales } \\\text { Selling price } & \$ 150 & 100 \% \\\text { Variable costs } & 60 & 40 \% \\\text { Contribution margin } & \$ 90 & 60 \% \\\end{array}$$
Fixed costs are $355,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager believes that a $12,000 increase in the monthly advertising budget would result in a 160-unit increase in monthly sales. What should be the overall effect on the company's monthly operating profit of this change?

---

Definitions:

Simple Interest

Interest calculated solely on the principal amount of a loan or deposit, without compounding.

Consecutive GICs

A sequence of Guaranteed Investment Certificates held one after another, often to create a ladder strategy for managing interest rate risk.

Interest Rates

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Term Deposit

A bank deposit that has a fixed term or period of time until you can access your money, often with a higher interest rate than savings accounts.