Task: Big Ed Corporation produces and sells a single product. Data regarding that product are as follows:
Per Unit Percent of Sales
Selling price………………………$200 100%
Variable expenses……………...$40 25%
Contribution Margin………….$160 75%
Question 1. Big Ed is currently selling 8,000 units per month. Fixed expenses are $650,000 per month. The advertising manager thinks that a $30,000 increase in the monthly marketing budget would result in a 200 unit increase in monthly sales. What should the overall effect on the company’s monthly net operating income of this change? An increase or decrease of how much money? Please show all work.
Rockinghorse Corporation contains a total expense per unit of $3.00 per unit at the 15,000 level of activity and total expense per unit of $2.05 at the 22,500 unit level of activity.
Question 2. What is the best estimate of the variable cost per unit for the Rockinghorse Corporation? Please show all work.
Question 3. What is the best estimate of the total fixed cost per period for the Rockinghorse Corporation? Please show all work.