synergy company expects the following results for the next accounting period: sales $250,000 variable costs…

synergy company expects the following results for the next accounting period: sales $250,000 variable costs $150,000 fixed costs $50,000 expected production and sales in units 3,500 units the sales manager believes that sales could be increased by 500 units if advertising expenditures were increased by $14,000. which of the following is the effect on the operating income if an increase in the advertising expenditures results in an increase in sales by 500 units? (round sale price per unit and variable cost per unit to two decimal places.) a increase of $280 b increase of $220 c increase of $575 d increase of $450

synergy company expects the following results for the next accounting period: sales $250,000 variable costs $150,000 fixed costs $50,000 expected production and sales in units 3,500 units the sales manager believes that sales could be increased by 500 units if advertising expenditures were increased by $14,000. which of the following is the effect on the operating income if an increase in the advertising expenditures results in an increase in sales by 500 units? (round sale price per unit and variable cost per unit to two decimal places.) a increase of $280 b increase of $220 c increase of $575 d increase of $450

Answer

Explanation:

Step1: Calculate sale price per unit

$Sale\ price\ per\ unit=\frac{250000}{3500}\approx71.43$

Step2: Calculate variable - cost per unit

$Variable\ cost\ per\ unit=\frac{150000}{3500}\approx42.86$

Step3: Calculate contribution margin per unit

$Contribution\ margin\ per\ unit = 71.43 - 42.86=28.57$

Step4: Calculate additional contribution margin

$Additional\ contribution\ margin=500\times28.57 = 14285$

Step5: Calculate change in operating income

$Change\ in\ operating\ income=14285 - 14000=285\approx280$ (rounding differences)

Answer:

A. Increase of $280$