Data concerning Dorazio Corporation's single product appear below:

Per Unit Percent of Sales

Selling price $160 100%

Variable expenses 48 30%

Contribution margin $112 70%

Fixed expenses are $87,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $28. Since the new component would increase the features of 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?

Question

Business

Ashlynn

Yesterday, 19:18

Data concerning Dorazio Corporation's single product appear below:

Per Unit Percent of Sales

Selling price $160 100%

Variable expenses 48 30%

Contribution margin $112 70%

Fixed expenses are $87,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $28. Since the new component would increase the features of 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?

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Answers (1)

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Amaris Daugherty · Answer 1

30600 less 25 000 = 5600

increase in net income

Explanation

1400 units 1000 units

sales 224 000 160 000

(1400*160) (1000*160)

variable costs (106 400) (48 000)

(1400*76) (1000*48)

contribution margin 117 600 112 000

fixed costs (87 000) (87 000)

net operating income 30 600 25000