1.
Data concerning Homme Corporation's single product appear below:
Per
unit                                     Â
    Percent of sales
Selling
price                                     Â
Â
$350Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
             100%
variable expenses                              Â
210Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
              60%
contribution margin                            Â
$140Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
             40%
The company is currently selling 3,600 units per month. Fixed expenses are $146,000 per month.
The marketing manager would like to cut the selling price by $20 and increase the advertising
budget by $16,000 per month. The marketing manager predicts that two changes will increase
monthly sales by 700 units. What should be the overall effect on the company's monthly net
operating income of this change?
A. decrease of $4,000
B.increase of 488,000
C.decrease of 360,400
D. increase of 379,600
Solution
Net operating income before change = Total contribution margin