Budgeted Net Income?

Question

Wilson Company prepared the following preliminary budget assuming no advertising expenditures:

Selling price: $10 per unit
Unit sales: 100,000
Variable expenses: $600,000
Fixed expenses: $300,000

Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net income?

Answer 1

New unit sales price: $10*1.15 = $11.50 per unit
Unit variable expense: $600,000/100,000 = $6.00 per unit
New unit sales volume: 100,000*1.10 = 110,000 units
New fixed expenses: $300,000+$100,000 = $400,000

Sales: 110,000*$11.50 = $1,265,000
Var. expenses: 110,000*$6.00 = $660,000
Fixed expenses: $400,000
Net income: $1,265,000 - $660,000 - $400,000 = $205,000

Answer 2

Budgeted Net Income

Answer 3

265,000 from 100,000 265% increase in profit. Well worth it.