Question

Chovanec Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 170 100 % Variable expenses 68 40 % Contribution margin $ 102 60 % Fixed expenses are $521,000 per month. The company is currently selling 7,000 units per month. Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? Multiple Choice decrease of $48,000 decrease of $6,000 increase of $48,000 increase of $6,000

Answer 1

The correct answer is D: increase $6000

Step-by-step explanation:

Giving the following information:

Data concerning that product appear below:

Selling price $ 170 100 %

Variable expenses $68 40 %

Contribution margin $ 102 60 %

Fixed expenses are $521,000 per month.

The company is currently selling 7,000 units per month.

Management is considering using a new component that would increase the unit variable cost by $6. The marketing manager predicts that monthly sales would increase by 500 units

Now:

Sales= 7500 units

Variable cost= $74 per unit

Contribution margin= $97

Original income= 7000*102 - 521000= 193000

New income= 7500*96 - 521000= 199,000

Variation= +6000