Question

Marlow Company makes bulk quantities of cleaning fluids. They currently sell 1,200 containers a month at a sales price of $23.75 per unit. If they add a new scent, they could charge $25 per unit for the improved product. It would cost them a total of $800 per month to make that alteration. If they decide to process further, it will improve their operating income. What would be the effect on operating income?

Answer 1

$700 increase

Step-by-step explanation:

The computation of the effect on the operating income is shown below:

= Increased in revenue - incremental cost

where,

Increased in revenue is

= (New sale price per unit - old sale price per unit) × number of containers

= ($25 - $23.75) × 1,200 containers

= $1.25 × 1,200 containers

= $1,500

And, the incremental cost would be $800

Now put these values to the above formula

So, the value would be equal to

= $1,500 - $800

= $700