Data concerning Sumter Corporation\'s single product appear below: Fixed expense
ID: 2542269 • Letter: D
Question
Data concerning Sumter Corporation's single product appear below:
Fixed expenses are $1,024,000 per month. The company is currently selling 8,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would improve the company's product, the marketing manager predicts that monthly slaes 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? Show your work!
Per Unit Percent of Sales Selling Price $220 100% Variable Expense 66 30% Contribution Margin $154 70%Explanation / Answer
A Net operating income under existing arrangent
B Net operating income if considering using a new component
Overall effect on the company's monthly net operating income :
Net operating income if considering using a new component - Net operating income under existing arrangent
= $204,400 - $208,000 = ($3,600)
Conclusion : If new component is used instead of existing arrangment than the overall company's monthly net operating income shall decrease by $3,600
Particular Amount Sales per unit $220 Variable Expense per unit $66 Contribution Margin per unit $154 Total Contribution Margin ( 8,000 units * $154) $1,232,000 Less Fixed Cost $1,024,000 Net operating income $208,000Related Questions
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