Craylon manufacturing produces a single product that sells for $ 120. variable costs per unit equal $ 30. the company expects total fixed costs to be $60,000 for the next month at the projected sales level of 1 comma 200 units. in an attempt to improve performance, management is considering a number of alternative actions. each situation is to be evaluated separately. suppose that management believes that a $ 10 comma 000 increase in the monthly advertising expense will result in a considerable increase in sales. sales must increase by to justify this additional expenditure.

Consider the following calculations

Explanation:

Currently:

Sales(1200 units*$130)                 $156000

Less:Variable costs(1200 units*$30)$36000

Contribution                                          $120,000

Less:Fixed costs                                 $60,000

Net operating income                         $60,000.

Now:

Let unit sales be 'x'.

Hence Contribution margin=($130x-$30x)=$100x.

Total fixed costs=($60,000+$$12000)=$72000

Hence required contribution margin=Fixed costs+Net operating income

=($72000+$60,000)=$132000

Hence

100x=132000

Hence x=units to be sold=(132000/100)=1320 units.

Hence increase in sales must be=(1320-1200)=120 units(C).

answer; encouraging the development of innovations by firms attempting to break a monopoly; (creative destruction)