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Unformatted text preview: 15-1515-28 (continued)(3) (continued)Spending $3,000 on advertising sheet music alone increases sales ofsheet music by 1,100 units and increases profit by $4,700. The next$1,000 spent on sheet music increases sales by only 100 more units.The resulting change in profit is:Increase in contribution margin (100 units @ $7) $ 700Increase in advertising cost (1,000)Decrease in profit $ (300)Thus, spending the last $1,000 on advertising causes the increase inprofit to decrease from $4,700 to $4,400.(4) To: Mr Hill(Your boss' name)From: (Your name)RE: Additional advertisingDetermining how much advertising to spend on each additional product inorder to increase profit by the greatest amount requires computing theincrease in profit from each additional $1,000 spent on each product.The profit changes are shown below....
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- Fall '07