Knapp Roofing Company has estimated the following amounts for its next fiscal year
Total fixed costs $840,000
Sale price per unit 80
Variable cost per unit 30
If the company spends an additional $35,000 on advertising, sales volume would increase by2,500 units. What effect will this decision have on the operating income of Evans?
A) Operating income will decrease by $90,000.
B) Operating income will increase by $90,000.
C) Operating income will increase by $200,000.
D) Operating income will increase by $125,000.
B .B) Increase in total contribution margin = 2,500 units x ($80 - $30 ) = 2,500 units x $50 = $125,000
Increase in operating income = $125,000 - $35,000 (Advertising costs) = $90,000
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