Data Concerning Fowler Corporation's Single Product Appear Below Fixed Costs Are $444,000 Per Month

question 126

Essay

Data concerning Fowler Corporation's single product appear below:
$$\begin{array} { l r c } & \text { Per Unit } & \text { Percent of Sales } \\\text { Selling price } & \$ 210 & 100 \% \\\text { Variable costs } & 126 & 60 \% \\\text { Contribution margin } & \$ 84 & 40 \% \\\end{array}$$
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would improve 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 operating profit of this change if fixed costs are unaffected?

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Definitions:

Earmarked Private Savings

Savings set aside by individuals for specific future uses or purchases, often with tax advantages or other incentives.

Government Bonds

Securities issued by a government to finance its expenditures, offering a fixed rate of return over a specific period.

Foreign Bonds

Bonds issued in a domestic market by a foreign entity, in the domestic market's currency.

National Debt

The total amount of money that a country's government has borrowed, through various means, and has not yet repaid.