Tapp Corporation produces a single product and currently sells 2,100 units per month with fixed expenses of $226,000. The marketing manager proposes cutting price by $13 and increasing advertising by $13,000, which is predicted to increase monthly sales by 220 units. To determine the overall effect on monthly net operating income, the net operating income under current and proposed scenarios must be calculated and compared.

1. Tapp Corporation produces and sells a single product. Data concerning that product appear
below:
Fixed expenses are $226,000 per month. The company is currently selling 2,100 units per month.
Required:
The marketing manager would like to cut the selling price by $13 and increase the advertising
budget by $13,000 per month. The marketing manager predicts that these two changes would
increase monthly sales by 220 units. What should be the overall effect on the company's
monthly net operating income of this change?
Tapp Corporation produces and sells a single product. Data concerning that product appear
below:
Solution
We will have to calculate the net operating income under both the scenarios (current and
proposed) to determine the overall effect on the company's monthly net income.
__________
The following tables shows the net operating income for current and proposed sales level:
Current