Question

TB Problem 3-161 Wrobbel Corporation... Wrobbel Corporation produces and sells a single product. Data concerning that product appear below: Selling price Variable expenses Contribution margin Per Unit $ 280 42 $ 238 Percent of Sales 100% 15% 85% Fixed expenses are $200.000 per month. The company is currently selling 1.900 units per month Management is considering using a new component that would increase the unit variable cost by S58. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 600 units. Required: What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? (Negative amount should be indicated by a minus sign.) Change in net operating income

Answer 1

	Current	Proposed
Unit sales	1900	(1900+600)=2500
Sales	(1900*280)=532,000	(2500*280)=700,000
Variable expenses	(1900*42)=79800	2500*(42+58)=$250,000
Contribution margin	452200	450,000
Fixed expenses	200,000	200,000
Net operating income	252200	250,000

Hence change in net operating income=Decrease in net operating income

=252200-250,000=-$2200(Negative).