Question

Fixed expenses are $87,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $28. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change

Answer 1

The selling price and variable cost is missing in the question.Therefore it is reproduced here;

Selling Price per unit $190

Variable Expenses $38

Step-by-step explanation:

total sales during the month 1,400*190 $266,000

variable Cost (38+28)*1,400 ($92,400)

Contribution margin $173,600

Fixed Expenses ($87,000)

Net operating income $86,600