Question

Salley Corporation produces and sells a single product. Data concerning that product appear below: Per Unit 180 Percent of Sales 100% $ Selling price Variable expenses Contribution margin 20% Fixed expenses are $1,243,000 per month. The company is currently selling 9,500 units per month. Management is considering using a new component that would increase the unit variable cost by 56. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 450 units What should be the overall effect on the company's monthly net operating income of this change? O decrease of $62,100 O decrease of $5,100 O increase of $62100 O Increase of $5,100 M ALO

Answer 1

Answer: Increase of $ 5,100

Explanation:

	$
New variable cost per unit ($36 per unit + $6 per unit)	42.00
New contribution margin per unit ($180 per unit - $42 per unit)	138.00
New unit monthly sales (9,500 units + 450 units)	9,950.00
New total contribution margin (9,950 units × $138 per unit)	1,373,100.00
Current total contribution margin (9,500 units × $144 per unit)	1,368,000.00
Change in total contribution margin and in net operating income	5,100.00