Acme Company makes and sells a single product. Acme’s origin…
Acme Company makes and sells a single product. Acme’s original budget for the upcoming year was to sell 9,000 units at a price of $30 per unit. Variable costs were expected to be $18 per unit and total fixed costs were expected to be $90,000. Management is considering an alternative plan, under which it would reduce the selling price by $1 per unit and increase the amount spent on its annual advertising campaign by $30,000. Management predicts that these actions will increase unit sales by 20%. If management’s projections are accurate, what is the effect of the changes on Acme’s budgeted operating income?