Wrobbel Corporation produces and sells a single product. Data concerning that pr
ID: 2419431 • Letter: W
Question
Wrobbel Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 270 100% Variable expenses 81 30% Contribution margin $ 189 70% 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. 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.)
Explanation / Answer
Under Existing Conditions(1400 Units)
Particulars
Amount
%
Selling Units
1,400
Selling Price
270
100
Less: Variable Cost
-81
30
Contribution
189
70
Total Contribution
264,600
Less: Fixed Cost
Profit
74,600
Under proposed Conditions(1700 Units)
Particulars
Amount
%
Selling Units
1,700
Selling Price
270
100
Less: Variable Cost
- 123
45.56
Contribution
147
54.44
Total Contribution
249,900
Less: Fixed Cost
- 190,000
Profit
59,900
Overall effect in Profit=74,600-59,900=$14,700
Under Existing Conditions(1400 Units)
Particulars
Amount
%
Selling Units
1,400
Selling Price
270
100
Less: Variable Cost
-81
30
Contribution
189
70
Total Contribution
264,600
Less: Fixed Cost
- 190,000
Profit
74,600
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