Roadrunner Manufacturing Produces Item Q with Variable Manufacturing Costs of $16/unit

question 134

Essay

Roadrunner Manufacturing produces Item Q with variable manufacturing costs of $16/unit. The selling price of Item Q is $20/unit. The fixed manufacturing overhead cost is $75,000. A normal production run includes 150,000 units. Roadrunner Manufacturing has discovered an additional process to change Item Q into Item QR. Additional costs are estimated at $3/unit. Item QR would sell for $24/unit. Additional fixed manufacturing overhead costs of $4,500 would be incurred if Item QR is produced. There would be no change in the number of units produced.
What would be the operating income for Item QR?

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Definitions:

Recession

A provisional downturn in economic conditions, involving a downturn in professional and industrial engagements, typically marked by a sequential GDP fall in two quarters.

Private Domestic Investment

Expenditures by private (non-government) entities on domestic capital goods, including constructions and equipment, to produce goods and services in the future.

Great Recession

A significant decline in economic activity across the globe that occurred between 2007 and 2009, widely considered the largest downturn since the Great Depression.

Expected Profit Rate

The anticipated return on investment, calculated based on projected incomes and the inherent risks associated with an investment.