Share
Explore BrainMass

Maximum amount to pay for advertising

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?

Solution Preview

Hello

Please see the response as below.

Best Wishes

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