Reference no: EM132966204

Question - Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows:

Sales $1,040,000

Variable expenses 520,000

Contribution margin 520,000

Fixed expenses 180,000

Net operating income $340,000

a) The sales manager is convinced that a 13% reduction in the selling price, combined with a $74,000 increase in advertising, would increase this year's unit sales by 25%. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? (Negative amounts should be input with a minus sign.)

b) The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.50 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $340,000 net operating income as last year?