Calderon Corporation produces and sells a single product. Data concerning that p

Question

Calderon Corporation produces and sells a single product. Data concerning that product appear below:

Fixed expenses are $190,000 per month. The company is currently selling 1,400 units per month.

Management is considering using a new component that would increase the unit variable cost by $42. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 300 units.

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. Omit the "$" sign in your response.)

Per Unit Percent of Sales   Selling price $ 270   100%   Variable expenses 81   30%   Contribution margin $ 189   70%

Explanation / Answer

The change would cause the net operating income to decrease from $ 74,600 to $ 59,900

Current Proposed $ $ Sales revenue 378,000 459,000 Variable cost 113,400 209,100 Contribution margin 264,600 249,900 Less fixed cost 190,000 190,000 Net operating income 74,600 59,900

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