Question - Due to erratic sales of its sole producta high-capacity battery for laptop computersPEM, Inc., has been experiencing difficulty for some time. The company's contribution format income statement for the most recent month is given below:
Sales (19,500 units at $30 per unit) $585,000
Variable expenses 409,500
Contribution margin 175,500
Fixed expenses 180,000
Net operating loss $(4,500)
The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, by how much will the company's net operating income increase or decrease? (Use the incremental approach in preparing your answer.)