Salley Corporation produces and sells a single product. Data concerning that pro

Question

Salley Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales $ 200 Selling price Variable expenses Contribution margin 100 % 20% 80% 40 160 Fixed expenses are $1,323,000 per month. The company is currently selling 9,380 units per month. Management is considering using a new component that would increase the unit variable cost by $9. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 600 units. What should be the overall effect on the company's monthly net operating income of this change? O increase of $90,600 O decrease of $6,180 O decrease of $90,600 increase of $6,180

Explanation / Answer

Hence increase in Net operating income=(183980-177800)=$6180

Hence the correct option is D.

Current Proposed Sales (200*9380)=$1876000 (200*(9380+600))=$1996000 Less:Variable expenses (40*9380)=$375200 (40+9)*(9380+600)=$489020 Contribution margin $1500800 $1506980 Less:Fixed expenses (1323000) (1323000) Net operating income $177800 $183980.

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