Harding is considering an advertising campaign that will cost $15,000 per month from january through march; it is expected to increase sales by 8% a month. at the same time harding will reduce sales prices to $17.00 per unit while keeping costs steady. required: (a.) what will operating income be in each of the three months before the advertising campaign?

Operating income = 230000

Operating income = 175000

Operating income = 257500

Explanation:

Assuming that Harding expects to sell 50000, 40000, 55000 units in January, February and March respectively and has a selling price of $15 per unit. Assuming that the variable and fixed costs are as follows;

material $5

labor $3

variable overheads $1.5

total fixed overhead $45000

The operating income in each of the three months would be as follows:

January

Sales = $15×50000

Sales = $750000

total variable costs = ($5 ×50000) + ($3 ×50000) + ($1.5 ×50000)

total variable costs = $475000

Operating income = $750000 - $475000 - $45000

Operating income = 230000

February

Sales = $15×40000

Sales = $600000

total variable costs = ($5 ×40000) + ($3 ×40000) + ($1.5 ×40000)

total variable costs = $475000

Operating income = $600000 - $380000 - $45000

Operating income = 175000

March

Sales = $15×55000

Sales = $825000

total variable costs = ($5 ×55000) + ($3 ×55000) + ($1.5 ×55000)

total variable costs = $522500

Operating income = $825000 - $522500 - $45000

Operating income = 257500

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