Question

Houpe Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 140 100 % Variable expenses 42 30 % Contribution margin $ 98 70 % Fixed expenses are $490,000 per month. The company is currently selling 6,000 units per month. Management is considering using a new component that would increase the unit variable cost by $5. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 300 units. What should be the overall effect on the company's monthly net operating income of this change?

Answer 1

Answer:

Effect on income= -$2,100

Explanation:

Giving the following information:

Contribution margin $ 98

Increase in variable cost= $5

Increase in sales= 300 units

To determine the effect on income, we need to use the following formula:

Effect on income= increase in contribution margin for new sales - increase in variable costs

Effect on income= 300*93 - 6,000*5

Effect on income= -$2,100