Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Assume again that the company sold 40,500 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.70 per unit. He thinks that this move, combined with some increase in advertising, would double annual unit sales. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach. Original data is below.
Sales@40500 units 3,240,000 Per unit 80.00
Variable exp 1,620,000 40.00
Contribution Margin 1,620,000 40.00
Fixed Expenses 180,000
Operating Inc 1,440,000