Answer:
$2,100 decrease in net operating income
Explanation:
For determining the overall effect we have to determine the contribution margin under each plan
In the current situation, the contribution margin is
= Sales units × (Selling price per unit - variable expense per unit)
= 6,000 units × ($140 - $42)
= 6,000 units × 98 units
= $588,000
In the proposed situation, the contribution margin is
= Sales - variable cost
where,
Sales units is
= 6,000 units + 300 units × $140
= $882,000
And, the variable cost is
= 6,000 units + 300 units × 42 units + 5 units
= $296,100
So, the contribution margin is
= $882,000 - $296,100
= $585,900
Now the overall effect is
= $585,900 - $588,000
= $2,100 decrease in net operating income
