Wrobbel Corporation produces and sells a single product Data

Wrobbel Corporation produces and sells a single product. Data concerning that product appear below Per Unit $ 280 Percent of Sales Selling price Variable expenses Contribution margin 100% 15% 85% 42 238 Fixed expenses are $200,000 per month. The company is currently selling 1,900 units per month. Management is considering using a new component that would increase the unit variable cost by $58. Since the new component would improve the company\'s product, the marketing manager predicts that monthly sales would increase by 600 units. Required What should be the overall effect on the company\'s monthly net operating income of this change if fixed expenses are unaffected? (Negative amount should be indicated by a minus sign) Change in net operating income

Solution

Calculaate change in net operating income :

Net operating income decrease by -2200

	Present	Proposed
Sales	1900*280 = 532000	2500*280 = 700000
Variable cost	1900*42 = 79800	2500*100 = 250000
Contribution margin	452200	450000
Less: Fixed cost	200000	200000
Net operating income	252200	250000