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 $170,000 per month. The company is currently selling 1,600 units per month. Management is considering using a new component that would increase the unit variable cost by $35. 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?

Explanation / Answer

1600 Units Selling Expense 250 400000 Variable Expense 50 80000 Contribution 200 320000 Fixed Expense 170000 Net Income 150000 Using New Component 1600 Units+300 units Selling Expense 250 475000 Variable Expense 50+35 85 161500 Contribution 165 313500 Fixed Expense 170000 Net Income 143500 Change In Net Operating Income(143500-150000) -6500

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