Question - The fixed costs of Giga Company are $386,000 and the total variable costs for its only product are 65% of the sales price, which is $110. Giga currently sells 7,100 units per month and is looking to sell more. Consider each of the following independently:
Part A - The product does not contain any gluten, so management would like to start noting this fact on its product's labeling, but in order to do so needs to be sure there is no contamination anywhere in the process. Additional containment procedures would increase variable costs by $9 per unit, and the expected monthly sales increase would be 500 units. What would be the effect of this change on the company's monthly income?
Decrease by $49,150
Increase by $14,750
Increase by $31,250
Decrease by $49,922
Part B - The marketing manager believes that a $9,000 increase in the monthly advertising budget would result in an increase in monthly sales of 170 units. What would be the effect of this increase in advertising on the company's monthly income?
Decrease by $2,455
Increase by $268,624
Decrease by $4,726
Increase by $270,895
Part C - The marketing manager believes that sales staff could sell as additional 180 units of product each month if properly motivated, and is considering cutting their collective monthly salaries by $33,000 while giving them a $11 commission on each unit sold. What effect should this strategy have on monthly income?
Increase
Decrease