Answer:
B. Operating income will increase by $3,620 per month.
Explanation:
In this question, we have to compare the operating income between current and expected proposal which is shown below:
We know that,
Operating income = Sales - variable cost - fixed cost
where,
Sales = Selling price per unit × Number of units produced per month
= $4 × 1,000
= $4,000
Variable cost = Variable cost per unit × Number of units produced per month
= $1.60 × 1,000
= $1,600
And, the fixed cost is $1,800
Now put these values to the above formula
So, the value would be equal to
= $4,000 - $1,600 - $1,800
= $600
Now for expected proposal
Operating income = Sales - variable cost - fixed cost
where,
Sales = Selling price per unit × Number of units produced per month
= $8 × 1,000
= $8,000
Variable cost = Variable cost per unit × Number of units produced per month
= $1.80 × 1,000
= $1,800
And, the fixed cost is $1,800 + $180 = $1,980
Now put these values to the above formula
So, the value would be equal to
= $8,000 - $1,800 - $1,980
= $4,220
The difference would be
= $4,220 - $600
= $3,620
