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

question 19

Essay

Rudy Corporation produces and sells a single product.Data concerning that product appear below:
$$\begin{array} { | l | r | r | } \hline & \text { Per Uni } & \text { Percent of Sales } \\\hline \text { Selling price } & \$ 150 & 100 \% \\\hline \text { Variable costs } & \underline{60 }&\underline{ 40 \%} \\\hline \text { Contribution margin } & \$ 90 & 60 \% \\\hline\end{array}$$
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?

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Definitions:

Gross Profit

The difference between sales revenue and the cost of goods sold before deducting operating expenses.

Income from Operations

The profit derived from a company's regular business activities, excluding unique or extraordinary revenues and expenses.

Delivery Expense

Costs incurred by a company to transport its products to customers.

Merchandise to Customer

The process of selecting, packaging, and delivering goods to buyers as part of sales operations.