Question

Zippy Company has a product that it currently sells in the market for $60 per unit. Zippy has developed a new feature that, if added to the existing product, will allow Zippy to receive a price of $75 per unit. The total cost of adding this new feature is $38,000 and Zippy expects to sell 2,400 units in the coming year. What is the net effect on next-year's operating income of adding the feature to the product?

Answer 1

Effect on income= $2,000 increase

Step-by-step explanation:

Giving the following information:

Previous selling price= $60

New selling price= $75

Increase in fixed costs= $38,000

Units sold= 2,400

We weren't provided with information regarding unitary variable costs. We need to determine the effect on income based on the selling price difference:

Effect on income= 2,400*(75-60) - 38,000

Effect on income= $2,000 increase