Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 75 50 % Contribution margin $ 75 50 % The company is currently selling 5,600 units per month. Fixed expenses are $194,000 per month. The marketing manager believes that a $5,300 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

The overall impact on the net operating income is the amount of increase in contribution from the addtional sales less the increase in monthly advertising budget.

$

Contribution = ($75 × 190) = 14,250

Fixed cost - advertising ( 5,300)

Net operating income 8950

Please, note that the fixed costs of $194,000 per month are not relevant for this decision. Simply because they would be incurred either way and that are not completely traceable to the increase sales.