Data concerning Lemelin Corporation\'s single product appear below: Percent of S

Question

Data concerning Lemelin Corporation's single product appear below: Percent of Sales 100% 50% 50% Per Unit Selling price Variable expenses Contribution margin $230 115 $115 The company is currently selling 7,000 units per month. Fixed expenses are $581,000 per month Management is considering using a new component that would increase the unit variable cost by $3. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 200 units. What should be the overall effect on the company's monthly net operating income of this change?

Explanation / Answer

Hence increase in Net operating income=(225400-224000)=$1400.

Current Proposed Sales (230*7000)=$1,610,000 230*(7000+200)=$1,656,000 Variable expenses (115*7000)=$805000 (115+3)*(7000+200)=$849600 Contribution margin $805000 $806400 Fixed expenses $581000 $581000 Net operating income $224000 $225400

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