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?
Please see the response as below.
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 contains calculations of the maximum amount that the company can pay for advertising and obtain a net operating income of $200,000.