Ask Question
16 July, 13:37

Naumann Corporation produces and sells a single product. Data concerning that product appear below: Per UnitPercent of Sales Selling price$260 100% Variable expenses 39 15% Contribution margin$221 85% Fixed expenses are $180,000 per month. The company is currently selling 1,700 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $45. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected

+2
Answers (1)
  1. 16 July, 15:18
    0
    -$6,100

    Explanation:

    The computation of the overall effect on the company monthly net operating income is shown below:

    But before that we need to do following calculations

    New variable cost per unit is

    = $39 per unit + $45 per unit

    = $84 per unit

    New contribution margin per unit is

    = $260 per unit - $84 per unit

    = $176 per unit

    New unit monthly sales is

    = 1,700 units + 400 units

    = 2,100 units

    Now New total contribution margin is

    = 2,100 units * $176 per unit

    = $369,600

    And, the Current total contribution margin is

    = 1,700 units * $221 per unit

    = $375,700

    Therefore the Change in total contribution margin and in net operating income is

    = New total contribution margin - current total contribution margin

    = $369,600 - $375,700

    = - $6,100
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Naumann Corporation produces and sells a single product. Data concerning that product appear below: Per UnitPercent of Sales Selling ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers