# how to calculate increase in net operating income?

How do I calculate the increase or loss of net operating income?

Per unit Percent of Sales
Selling price \$76.00 100%
Variable expenses 41.80 55%
Contribution margin \$34.20 45%

Fixed expenses are \$75,500 per month and the company is selling 3,200 units per month.

Calculate the increase or decrease in net operating income if a \$8,000 increase in the monthly advertising budget would increase monthly sales by \$15,000

 ArcSine Posts: 961, Reputation: 523 Senior Member #2 Mar 14, 2011, 07:01 AM
If I have a contribution margin of 40%, then every additional dollar of sales adds 40 cents to my net income.

Suppose I find a strategy which will add 10,000 of additional sales. This will in turn add 4,000 to my net income, before considering any cost of the strategy. Now suppose this strategy will cost me 4,200 per year.

When you consider an extra 4,000 in profit from the sales increase, but an extra 4,200 in costs to implement the strategy, am I coming out ahead or not... and by how much?