Answer:
Effect on income= $135,000 increase
Explanation:
Giving the following information:
The expected cost and revenue data for the new product are as follows:
Annual sales= 2,500 units
Selling price per unit= $304
Variable costs per unit:
Production= $125
Selling= $49
Avoidable fixed costs per year:
Production= $50,000
Selling= $75,000
Allocated common corporate costs per year= $55,000
If the new product is added, the combined contribution margin of the other, existing product lines is expected to drop $65,000 per year. Total common corporate costs would be unaffected by the decision of whether to add the new product.
Effect on income= (2,500*304) - (2,500* 174) - 125,000 - 65,000= $135,000
