KidsPlay is considering increasing the annual spending on advertising by $200,000. The managers believe that the investment will translate into a 10% increase in unit sales. Should the company make the investment? What is the change in operation income?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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 KidsPlay, Inc., manufactures and sells table sets. In 2016, it reported the following:

Units Produced and sold                                                                                3,000

Operating income per unit ($450,000 ¸ 3,000)                                  $150

Selling price ($1,500 + $150)                                                                     $1,650

Full cost per unit (150 ÷ 0.10)                                                                    $1,500

Variable Costs per unit                                                                                  $600

Markup percentage on variable cost ($1,050 ¸ $600)                   175%

 

KidsPlay is considering increasing the annual spending on advertising by $200,000. The managers believe that the investment will translate into a 10% increase in unit sales. Should the company make the investment? What is the change in operation income?

Group of answer choices
a) Yes, $45,000
b) Yes, $115,000
c) Yes, $315,000
d) No, negative impact
 
 
 
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