Tasty tangerine is currently selling 50,000 boxes for $25 per box. variable cost per box is $17 and fixed costs total $260,000. a plan is being considered to increase advertising and reduce the selling price. the advertising would increase fixed costs by $60,000. management believes the advertising along with a $2 reduction in the selling price per box will increase sales volume by 24,000 boxes. if management's predictions are correct, making these changes will cause net income for the year to increase by $132,000 increase by $44,000 decrease by $104,000 decrease by $16,000

decrease by $16,000

Explanation:

We know that,

The net income = Sales - variable cost - fixed expense

The sales = Sales units × selling price per unit

                = 50,000 boxes × $25

                =  $1,250,000

The variable cost = Sales units × variable cost per unit

                             = 50,000 boxes × $17

                             =  $850,000

And, the fixed cost is  $260,000

So, the net income would equal to

= $1,250,000 - $850,000 -  $260,000

= $140,000

Since, the sales units are increased by $24,000 units, so new sales units is 74,000 units

And, the sales per unit is decreased by 2 So, new sales per unit is $23

So, the new sales

= Sales units × selling price per unit

= $74,000 × $23 = $1,702,000

The variable cost = Sales units × variable cost per unit

So, the new variable cost equals to

= 74,000 units × $17

= $1,258,000

And the fixed expense would increased by the $60,000 so new fixed cost is $320,000

So, the new net income would be equal to

= $1,702,000 - $1,258,000  - 320,000

= $124,000

If we compare these two net income, then the difference would be

=  $140,000 -  $124,000

= $16,000 decrease

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