Richter Company has a single product called a Wim. The company normally produces

Question

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

A number of questions relating to the production and sale of Wims are given below. Each question is
independent.

Assume that Richter Company has sufficient capacity to produce 72,000 Wims each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 20% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $120,000.

Calculate the incremental net operating income. (Negative amount should be indicated by a minus sign.)

Incremental Net Operating Income:_________

,

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

Explanation / Answer

a)Increase in units sales =60000 * 20 % = 12000 units

Selling price = 40

Variable cost = 7.70+13+3.5+3.5   =$ 27.7 per unit

Contribution per unit = 40 -27.7 =$ 12.30

Total Incremental contribution = 12.30 * 12000 = $ 147600

less:Fixed cost                                                              (120000)

Incremental net income                                                27600

b)yes ,as net operating income will increased by $ 27600

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