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Let's break down the problem step by step to determine the overall effect on the company's monthly net operating income based on the provided data.

### Current Information:
1. **Selling Price per Unit** = $150
2. **Variable Expenses per Unit** = $60
3. **Contribution Margin per Unit** = $90 (i.e., $150 - $60)
4. **Fixed Expenses per Month** = $185,000
5. **Current Sales Volume** = 6,200 units per month
6. **Proposed Advertising Budget Increase** = $7,900
7. **Expected Increase in Monthly Sales** = 200 units

### Calculations:

#### 1. **Current Contribution Margin (before the change):**
Contribution Margin per Unit = $90

Total Contribution Margin for 6,200 units:
\[
\text{Total Contribution Margin} = 6,200 \times 90 = 558,000
\]

#### 2. **Current Net Operating Income:**
\[
\text{Net Operating Income (before advertising change)} = \text{Total Contribution Margin} - \text{Fixed Expenses}
\]
\[
= 558,000 - 185,000 = 373,000
\]

#### 3. **Effect of Increased Sales (due to advertising change):**

- Additional Units Sold = 200 units
- Contribution Margin per Additional Unit = $90
- Total Contribution Margin from Additional Sales = 200 × 90 = $18,000

#### 4. **Total Advertising Cost Increase:**
The company will spend an additional $7,900 on advertising.

#### 5. **New Net Operating Income:**

The overall effect of the changes is:
\[
\text{Change in Net Operating Income} = \text{Additional Contribution Margin} - \text{Advertising Cost Increase}
\]
\[
= 18,000 - 7,900 = 10,100
\]

This means the company's net operating income will increase by **$10,100** after the increase in advertising and sales.

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### Related Questions:
1. How would a larger advertising budget affect net income if the sales increase more than expected?
2. What is the breakeven point for the company in terms of units sold?
3. How much would net operating income change if the fixed expenses increased by 5%?
4. How does the contribution margin ratio affect decision-making on pricing or cost-cutting?
5. What would happen to net operating income if variable costs increased by 10%?

### Tip:
Always compare the cost of increased advertising with the expected increase in contribution margin to ensure the investment will be profitable.

Kuzio Corporation produces and sells a single product. The marketing manager believes that a $7,900 increase in the monthly advertising budget would result in a 200-unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income?

Analyze how a $7,900 increase in the advertising budget for Kuzio Corporation leads to a 200-unit increase in monthly sales. Learn how to calculate the contribution margin, fixed expenses, and the net effect on operating income.

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