Riven corporation has a single product whose selling price is $10. at an expected sales level of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are $300,000. the marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. what would be the company's net operating income if the marketing manager's recommendation is adopted?
a. $132,000b. $290,000c. $180,000d. $240,000

The answer is 240.000

Explanation:

In this case you have to draft the first scenario and then calculate the new scenario with the given information

                                         units     price/cost              total    

Revenue                       100,000.00   10.00   1,000,000.00  

Variable expenses       100,000.00   6.00   (600,000.00)

Contribution margin     100,000.00    4.00   400,000.00  

Fixed expenses                                                   (300,000.00)

Net income                                               100,000.00

then calculate the new revenue

New price is = (price*(1+selling price increase)) = 10*1.2 = 12

Calculate the expected units

Expected units = (actual units sold*(1-decrease in sales)= (100.000*(1-0.1)) = 90.000

Revenue                          90,000.00   12.00   1,080,000.00  

Variable expenses          90,000.00   6.00   (540,000.00)

Contribution margin  90,000.00   6.00   540,000.00  

Fixed expenses                                            (300,000.00)

Net income                                              240,000.00

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