Answer:
Waterways Corporation
If Waterways begins mass-producing its special-order sprinklers, its net operating income would almost double, increasing by $680,202.
Explanation:
a) Data and Calculations:
Increase in variable costs per unit = $0.70
Increase in number of sprinklers sold = 10%
Increase in average sales price = $0.20
Current sales = 481,000 sprinkler units
Selling price = $25.20
New selling price = $25.40 ($25.20 + $0.20)
New quantity of sprinkler units = 529,100 (481,000 * 1.1)
Increase in variable cost = $370,370 (529,100 * $0.70)
New variable cost = $6,181,530 ($5,811,160 + $370,370)
Income Statements Normal Mass Production
Sales revenue $12,121,200 $13,439,140
Variable manufacturing costs $5,811,160 $6,181,530
Variable selling and admin. costs 2,673,680 2,941,048
Total variable costs $8,484,840 $9,122,578
Contribution margin $3,636,360 $4,316,562
Fixed costs:
Manufacturing costs $2,155,660 $2,155,660
Selling and administrative costs 798,370 798,370
Total fixed costs $2,954,030 $2,954,030
Net operating income $682,330 $1,362,532
Increase in net operating income = $680,202 ($1,362,532 - $682,330)
