Wrobbel Corporation produces and sells a single product. Data concerning that pr

Question

Wrobbel Corporation produces and sells a single product. Data concerning that product appear below Per Unit $ 280 Percent of Sales Selling price Variable expenses Contribution margin 100% 15% 85% 42 238 Fixed expenses are $200,000 per month. The company is currently selling 1,900 units per month. Management is considering using a new component that would increase the unit variable cost by $58. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 600 units. Required What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? (Negative amount should be indicated by a minus sign) Change in net operating income

Explanation / Answer

Calculaate change in net operating income :

Net operating income decrease by -2200

Present Proposed Sales 1900*280 = 532000 2500*280 = 700000 Variable cost 1900*42 = 79800 2500*100 = 250000 Contribution margin 452200 450000 Less: Fixed cost 200000 200000 Net operating income 252200 250000

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