Question

Naumann Corporation produces and sells a single product. Data concerning that product appear below: Selling price Variable expenses Contribution margin Per Unit $ 23e 46 $184 Percent of Sales 100% 2ex 80% Fixed expenses are $150,000 per month. The company is currently selling 1,000 units per month Required: Management is considering using a new component that would increase the unit variable cost by $80. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 700 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? (Negative amounts should be indicated by a minus sign.) Change in net operating income

Answer 1

Change in Net Operating Income = $(7,200)

Explanation;  

New Variable Cost Per Unit ($46 + $80)	$126
New Contribution Margin Per Unit ($230 -$126)	$104
New Unit Monthly Sales (1000 Units +700 Units)	$1,700
New Total Contribution Margin (1,700 Units ×$104 Per Unit)	$176,800
Current Total Contribution Margin (1000 Units × $184 Per Unit)	$184,000
Change in Total Contribution Margin and in Net Operating Income	$(7,200)