Question

Pioche Company is considering selling a "premium" version of one of its products. The following information is available. The additional processing costs are the costs needed to transform the units from "standard" to "premium."Number of units produced 100,000Selling price of "standard" units $10 per unitAdditional processing costs $500,000Selling price of "premium" units $17 per unitBefore any additional processing costs, the total production cost for the 100,000 units is $900,000. What will be the change in Pioche Company's net income if the company decides to sell a "premium" version of this product?A- Decrease of $400,000B- Increase of $200,000C- No changeD- Decrease of $200,000E- Increase of $100,000

Answer 1

Answer: B- Increase of $200,000

Explanation:

The extra revenue that will be gained if the company sells premium units will be;

= Premium price - normal price

= 17 - 10

= $7

There are 100,000 unit so the extra revenue is;

= 7 * 100,000

= $700,000

The increase in Net income will be;

= 700,000 - additional processing costs

= 700,000 - 500,000

= $200,000