Problem:

Topeka Company's income statement for the current month shows that the company sold 400,000 units of its product and earned a net operating income of $600,000. Management is very pleased with the result and believes the company's strong financial position is strong because sales have to go down 50% from the current level before losses can occur. Management further believes that if the company runs a new TV commercial at a cost of $60,000 per month , sales volume next month could grow by 25% from the current sales level without the need to lower sales price.

Required:

Question: If this action is taken , what will be the increase or decrease in the next month's net operating income from the current month ?

A) increase by 240,000

B) increase by 300,000

C) increase by 800,000

D) Decrease by 60,000

E) None of above

Note: Be sure to show how you arrived at your answer.