Answer:
Effect on income= $26,950 decrease
Explanation:
Giving the following information:
Increase in unitary production costs= $0.7
Increase in units sold= 49,000
Variable selling and administrative costs= $2,644,240
Variable manufacturing costs= $7,866,260
<u>First, we need to calculate the unitary variable manufacturing costs and unitary variable selling and administrative costs:</u>
Unitary variable manufacturing costs= 7,866,260/490,000= $16.05 + 0.7= $16.75
Unitary variable selling and administrative costs= 2,644,240/490,000= $5.40
<u>Now, to determine the effect on income, we need to use the following formula:</u>
Effect on income= Increase in contribution margin new sales - decrease in contribution margin old sales
Effect on income= 49,000*(28.6 - 16.75 - 5.4) - 490,000*0.7
Effect on income= 316,050 - 343,000
Effect on income= $26,950 decrease
