The Western Company Is Considering the Addition of a New

question 79

Multiple Choice

The Western Company is considering the addition of a new product to its current product lines. The expected cost and revenue data for the new product are as follows: $\begin{array}{|r|r|}\hline \text { Annual Sales } & 3,000 \text { Units } \\\hline \text { Selling Price per Unit } & \$ 309 \\\hline \text { Variable Costs (Per Unit) } & \$ 130 \\\hline \text { Production } & \$ 50 \\\hline \text { Selling } & \\\hline \text { Avoidable Fixed Costs per Year: } & \$ 51,000 \\\hline \text { Production } & \$ 75,000 \\\hline \text { Selling } & \\\hline \text { Unavoidable Allocated Fixed Corporate } & \$ 54,000 \\\hline \text { Costs per Year } & \\\hline\end{array}$ If the new product is added to the existing product line, then sales of existing products will decline. Therefore, the contribution margin of the other existing product lines is expected to drop $78,000 per year.




-If the new product is added next year,what will be the increase in operating income resulting from this decision?

• A) $183,000.
• B) $207,000.
• C) $261,000.
• D) $387,000.

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Definitions:

Robert Louis Stevenson

A Scottish novelist, poet, and travel writer, famous for works like Treasure Island and Strange Case of Dr Jekyll and Mr Hyde.

Lives

The existence of individuals or organisms characterized by growth, reproduction, and the capacity for change and adaptation in their environment.

Selling

The act of exchanging a product or service for money or other compensation.

Two-Way

Communication or interaction that involves reciprocal action or influence, often referring to communication channels that allow for feedback from the recipient.