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    Maximum amount to pay for advertising

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    Birney Company has prepared the following budget data:

    Sales 150,000 units
    Selling Price $25 per unit
    Variable expenses $15 per unit
    Fixed manufacturing expenses $800,000
    Fixed selling and administrative expenses $700,00

    An advertising agency claims that an aggressive advertising campaign would enable the company to increase its unit sales by 20%. What is the maximum amount that the company can pay for advertising andd obtain a net operating income of $200,000?

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    https://brainmass.com/business/accounting/maximum-amount-pay-advertising-84625

    Solution Preview

    Hello

    Please see the response as below.

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    Current Status

    Revenue (sales*selling price) $3750000
    Total variable cost (sales*variable cost per unit) $2250000
    Fixed manufacturing expenses $ 800000
    Fixed selling and administrative expenses $ 700,00

    Net operating income = Revenue - Total variable cost - Fixed ...

    Solution Summary

    Solution contains calculations of the maximum amount that the company can pay for advertising and obtain a net operating income of $200,000.

    $2.19

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