Figueiredo Inc., selling price for Amazing pen is $14.00 per pack and variable c

Question

Figueiredo Inc., selling price for Amazing pen is $14.00 per pack and variable cost per unit is $6.00. The total

fixed expenses for the quarter amounts to $50,000. The company is currently selling 10,000 units per month.

The production manager would like to introduce a new equipment. The new equipment will increase variable

expenses by $2.00 per unit. However, there will be a cost savings of $10,000 per quarter. The production

manager in consultation with the marketing manager predicts that introduction of the new equipment will

increase production by and sales by 1000 units. What should be the overall effect on the company's monthly net

operating income of this change?

Explanation / Answer

Monthly Net operating income would decrease by $10,666.67 Statement showing computations Particulars Existing = 10,000 Units New=11,000 Units Difference Sales value =             140,000.00                 154,000.00           14,000.00 Variable Costs             60,000.00                   88,000.00           28,000.00 Contribution = Sales - VC             80,000.00                   66,000.00         (14,000.00) Fixed Costs             16,666.67                   13,333.33           (3,333.33) Income = Contribution - FC             63,333.33                   52,666.67         (10,666.67)

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