Fixed expenses are $499,000 per month. The company is currently selling 5,000 units per month. The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $33,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 900 units. What should be the overall effect on the company's monthly net operating income of this change

decrease of $8,900

Explanation:

Use the following formula to calculate the net operating income

Net operating income = Sales - Variables cost - Fixed cost

At Current Sales Level

Sales = 5,000 x $160 = $800,000

Variable cost = 5,000 x $48 = $240,000

Fixed cost = $499,000

Placing values in the formula

Net Operaitng Income = $800,000 - $240,000 - $499,000 = $61,000

At Increased Sales level

Sales = 5,900 x ($160-$13) = $867,300

Variable cost = 5,900 x $48 = $283,200

Fixed cost = $532,000

Placing values in the formula

Net Operaitng Income = $867,300 - $283,200 - $532,000 = $52,100

Now calculate the change in net operating income

Change in net operating income = Net operating income at current sales - net operating income at increased sales = $61,000 - $52,100 = $8,900

Hence, Net operating income is decreased by $8,900

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

his average speed in km per hour is ≈ 55.4 km/h and about 15.4 m/s.