All right so there are some inconsistencies with this problem I am working on and I cannot find out what I am doing wrong.


The question asks

Fixed expenses are $531,000 per month. The company is currently selling 4,000 units per month. The marketing manager would like to cut the selling price by $14 and increase the advertising budget by $35,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change?

And provides the table below.

So I lined everything up in excel

See he4.jpg & he5.jpg

Was I supposed to allocate the increase in the advertising budget to something else besides fixed expenses?

Excel attachments

The homework asks for one of the following to be selected

Increase of $38,000

Increase of $58,000

Decrease of $18,000

Decrease of $38,000

You're making this extremely complicated. Even though variable is currently 20% of sales, there's nothing to imply that simply changing the sales price is going to change the variable cost per unit. There's no reason for it to. So that 20% isn't going to stay 20%. Nor do you even need that.

Let's see if we can simplify this:
Since variable per unit has not changed, you only need to worry about contribution margin. If you want to do sales and variable also, you can, but you don't actually need it. You can go straight from contribution margin.

So you only need to deal with figuring old and new contribution margin, and subtracting old and new fixed costs. And you have your two net incomes right there. You don't need all the percentages, nor all the costs per unit or any of that stuff. In other words, you only need those last 3 lines.