Based on the changes,Tasty Tangerine's net income for the year will decrease by $16,000 from $140,000 to $124,000.
Data and Calculations:
Current sales unit = 50,000 boxes
Selling price per box = $25
Variable cost per box = $17
Total Fixed costs = $260,000
Contribution margin = $8 ($25 - $17)
- Net income based on current sales plan = $140,000 ($8 x 50,000 - $260,000)
New Plan's sales units = 74,000 boxes
Selling price per box = $23 ($25 - $2)
Variable cost per box = $17
Total Fixed costs = $320,000 ($260,000 + $60,000)
Contribution margin per box = $6 ($23 - $17)
- Net income based on new plan = $124,000 ($6 x 74,000 - $320,000)
Thus, the changes will cause Tasty's net income for the year to decrease by $16,000.
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