Grable Corporation Produces and Sells a Single Product

question 186

Essay

Grable Corporation produces and sells a single product. Data concerning that product appear below: Fixed expenses are $628,000 per month. The company is currently selling 5,000 units per month.
Required:
The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $45,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 800 units. What should be the overall effect on the company's monthly net operating income of this change? Show your work!

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Definitions:

Par Value

Par value is the nominal or face value of a bond, share of stock, or coupon as indicated on a bond or stock certificate; it is a static value and not indicative of market value.

Treasury Bill

Short-term U.S. government debt obligations backed by the Treasury Department with a maturity of less than one year.

Par Value

The face value of a bond or the stock value stated in the corporate charter, often used in legal documents.

Effective Annual Yield

Effective annual yield is the return on an investment expressed as an annualized rate, accounting for compounding over a period, providing a more accurate measure of profitability.