Bohlen Corporation produces and sells a single product. Data concerning that pro

ID: 2460662 • Letter: B

Question

Bohlen Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $716,000 per month. The company is currently selling 6,000 units per month. Consider each of the following questions independently.

This question is to be considered independently of all other questions relating to Bohlen Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $17 and increase the advertising budget by $42,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change?

increase of $85,000

increase of $121,000

decrease of $85,000

decrease of $17,000

Per Unit Percent of Sales Selling price $180 100% Variable expenses 36 20% Contribution margin $144 80%

Explanation / Answer

Actual

Budgeted

Sales

1080000

=7000*(180-17)

=994300

Less- variable cost

216000

252000

Contribution margin

864000

889000

Less- Fixed cost

716000

758000

Net Operating Income

148000

131000

Net operating income decreases by 17000 ( 148000 – 131000)

ANSWER = D) 17000