Boost Your Operating Income with Increased Sales Volume
Explanation:
Prince Paper has budgeted the following amounts for its next fiscal year:
- Total fixed expenses: $900,000
- Selling price per unit: $85
- Variable expenses per unit: $35
If Prince Paper spends an additional $12,100 on advertising, sales volume should increase by 3,000 units.
To calculate the effect on income, we need to determine the incremental total contribution and deduct the incremental fixed costs:
Effect on income = 3,000 * ($85 - $35) - $12,100 = $137,900
Therefore, the additional advertising spending leading to increased sales volume would result in a net operating income increase of $137,900 for Prince Paper.